J&J Snack Foods - 10-Q quarterly report FY2013 Q1

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 29, 2012

or

 

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

 

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):

 

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

As January 21, 2013, there were 18,797,826 shares of the Registrant’s Common Stock outstanding.

 

INDEX

J & J SNACK FOODS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(in thousands, except per share amounts)

 

 

J&J SNACK FOODS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

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)

 

 

 

 

 

 

We have applied no aggregation criteria to any of these operating segments in order to determine reportable segments.  Our three reportable segments are Food Service, Retail Supermarkets 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

Frozen Beverages

We sell frozen beverages and related products to the food service industry 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 Chief Operating Decision Maker for Food Service and Retail Supermarkets and the Chief Operating Decision Maker for Frozen Beverages monthly review detailed operating income statements and sales reports 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 three reportable segments is 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. No intangible assets were acquired in the three months ended December 29, 2012.  Aggregate amortization expense of intangible assets for the three months ended December 29, 2012 and December 24, 2011 was $1,119,000 and $1,132,000, respectively.

Estimated amortization expense for the next five fiscal years is approximately $4,500,000 in 2013, $4,400,000 in 2014 and 2015 and $4,200,000 in 2016 and $1,700,000 in 2017. The weighted average amortization period of the intangible assets is 10.1 years.

Goodwill

The carrying amounts of goodwill for the Food Service, Retail Supermarket and Frozen Beverage segments are as follows:

There were no changes in the carrying amounts of goodwill for the three months ended December 29, 2012.

 

 

 

Marketable securities held to maturity and available for sale values are derived solely from level 1 inputs.

The amortized cost, unrealized gains and losses, and fair market values of our investment securities held to maturity at December 29, 2012 are summarized as follows:

 

 

The amortized cost, unrealized gains and losses, and fair market values of our investment securities available for sale at December 29, 2012 are summarized as follows:

 

 

The mutual funds seek current income with an emphasis on maintaining low volatility and overall moderate duration.

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

The amortized cost, unrealized gains and losses, and fair market values of our investment securities held to maturity at September 29, 2012 are summarized as follows:

 

 

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 December 29, 2012 and September 29, 2012 are summarized as follows:

 

Proceeds from the redemption and sale of marketable securities were $240,000 and $33,310,000 in the three months ended December 29, 2012 and December 24, 2011, respectively, with no gain or loss recorded.  We use the specific identification method to determine the cost of securities sold.

 

 

The purchase price allocation for the handhelds acquisition is as follows:

 

Acquisition costs of $546,000 for the handhelds acquisition are included in other general expense in the consolidated statements of earnings for the year September 24, 2011.

The purchase price allocation for the Kim and Scott’s acquisition is as follows:

 

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, are sufficient to fund future growth and expansion.  See Note 11 to these financial statements for a discussion of our investment securities.

The Company’s Board of Directors declared a regular quarterly cash dividend of $.16 per share of its common stock payable on December 27, 2012, to shareholders of record as of the close of business on December 11, 2012.

In our fiscal year ended September 29, 2012, we purchased and retired 142,038 shares of our common stock at a cost of $8,167,125.  All of the shares were purchased in the fourth quarter.  Subsequent to September 29, 2012 and through October 31, 2012, we purchased and retired 48,255 shares of our common stock at a cost of $2,762,602.  On November 8, 2012 the Company’s Board of Directors authorized the purchase and retirement of an additional 500,000 shares of the Company’s common stock.

In the three months ended December 29, 2012 and December 24, 2011, 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 $123,000 in accumulated other comprehensive loss in the 2013 first quarter and an increase of $156,000 in accumulated other comprehensive loss in the 2012 first quarter.

Results of Operations

Net sales increased $18,722,000 or 11% to $191,408,000 for the three months ended December 29, 2012 compared to the three months ended December 24, 2011.

Excluding sales resulting from the acquisition of Kim & Scott’s Gourmet Pretzels in June 2012, sales increased approximately 10% for the three months.

 

Sales to food service customers increased $17,118,000 or 15% in the first quarter to $130,187,000.  Excluding Kim & Scott’s sales, food service sales increased approximately 14% for the quarter.  Soft pretzel sales to the food service market increased 27% to $32,594,000 in the first quarter due to increased sales to restaurant chains, warehouse club stores and throughout our customer base. Increased sales to two customers accounted for approximately 50% of the increase in pretzel sales in the quarter. Without Kim & Scott’s, pretzel sales increased about 23%.  Frozen juices and ices sales decreased 4% to $7,527,000 in the three months resulting from lower sales to school food service accounts partially offset by higher sales to warehouse club stores.  Churro sales to food service customers increased 33% to $13,807,000 in the first quarter with sales to one restaurant chain accounting for 85% of the increase.

Sales of bakery products increased $7,485,000 or 12% in the first quarter to $68,305,000 as sales increases were spread throughout our customer base.

Sales of new products in the first twelve months since their introduction were approximately $4.8 million in this quarter. Price increases accounted for approximately $3.0 million of sales in the quarter and net volume increases, including new product sales as defined above and sales resulting from the acquisition of Kim & Scott’s, accounted for approximately $14.1 million of sales in the quarter.

Operating income in our Food Service segment increased from $7,254,000 to $12,597,000 in the quarter. Operating income for the quarter benefited from increased sales volume and price increases. Additionally, last year’s quarter was impacted by a management and sales meeting expense of about $550,000.

RETAIL SUPERMARKETS

Sales of products to retail supermarkets decreased $131,000 or less than 1% to $20,703,000 the first quarter.  Excluding Kim & Scott’s sales, sales decreased 2% for the first quarter.  Soft pretzel sales for the first quarter were up 5% to $8,578,000 on a  unit volume increase of 6% for the quarter. Excluding Kim & Scott’s sales, soft pretzel sales increased about 2% for this quarter.  Sales of frozen juices and ices decreased $610,000 or 9% to $6,470,000 in the first quarter on a unit volume decrease of 14% in this quarter. Coupon redemption costs, a reduction of sales, increased 4% or about $32,000 for the quarter. Handheld sales to retail supermarket customers increased 7% to $6,313,000 in the quarter.

Sales of new products in the first twelve months since their introduction were approximately $1.2 million in the first quarter. Price increases accounted for approximately $200,000 of sales in the quarter and net volume decreases, including new product sales as defined above and Kim & Scott’s sales and net of increased coupon costs, accounted for approximately $300,000 of the sales decrease in this quarter. Operating income in our Retail Supermarkets segment decreased from $1,824,000 to $1,570,000 in the quarter primarily because of increased allowances for the introduction of products into additional retailers, lower sales and increased advertising expenses.
 

 

FROZEN BEVERAGES

Frozen beverage and related product sales increased 4% to $40,518,000 in the first quarter.  Beverage related sales alone were up 5% in the first quarter. Gallon sales were up 2% for the three months.  Service revenue increased 3% to $11,842,000 in the first quarter with sales increases and decreases spread throughout our customer base.

Sales of beverage machines, which tend to fluctuate from year to year while following no specific trend, were $135,000 or 5% higher in  the three month period. The approximate number of company owned frozen beverage dispensers was 42,700 and 42,500 at December 29, 2012 and September 29, 2012, respectively.  Operating income in our Frozen Beverage segment was $894,000 in this year’s quarter compared to an operating loss of $615,000 last year.  The improvement in operating results was from a combination of higher sales and a reduction of expenses.  Last year’s quarter included a management and sales meeting expense of about $200,000.

CONSOLIDATED

Total operating expenses increased $1,131,000 in this quarter but as a percentage of sales decreased from 22% percent to 20%.  The drop in percentage was generally because of increased sales and lower expenses in our frozen beverage segment and the overall reduction of $800,000 in expense because of the management and sales meeting we had last year.  Marketing expenses decreased from 10% of sales last year to 9% this year also because of higher sales and reduction of expenses.  Distribution expenses were 8% of sales in both years’ quarter.  Administrative expenses were 3.45% of sales this year compared to 3.51% of sales last year.

 

Operating income increased $6,598,000 or 78% to $15,061,000 in the first quarter as a result of the aforementioned items.

Investment income increased by $421,000 in the quarter due primarily to increased investments of marketable securities.  We invested $80 million in this quarter in mutual funds that seek current income with an emphasis on maintaining low volatility and overall moderate duration.  We estimate yield from these funds to approximate 4%.

Net earnings increased $4,741,000 or 86% in the current three month period to $10,226,000 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.

Item 4.           Controls and Procedures

 

There has been no change in the Company’s internal control over financial reporting during the quarter ended December 29, 2012, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 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.

 

 

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