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EX-99.5 - J&J SNACK FOODS CORPv208494_ex99-5.htm
EX-31.1 - J&J SNACK FOODS CORPv208494_ex31-1.htm
EX-99.6 - J&J SNACK FOODS CORPv208494_ex99-6.htm
EX-31.2 - J&J SNACK FOODS CORPv208494_ex31-2.htm

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 25, 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)

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 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).
Yes                                                                No

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).
Yes                                                      x           No

As of January 17, 2011, there were 18,570,616 shares of the Registrant’s Common Stock outstanding.

 
INDEX

       
Page
       
Number
         
Part I.
Financial Information
   
         
 
Item l.
Consolidated Financial Statements
 
3
         
 
Consolidated Balance Sheets – December 25, 2010 (unaudited) and September 25, 2010
 
3
         
 
Consolidated Statements of Earnings (unaudited) - Three Months Ended December 25, 2010 and December 26, 2009
 
5
         
 
Consolidated Statements of Cash Flows(unaudited) – Three Months Ended December 25, 2010 and December 26, 2009
 
6
         
 
Notes to the Consolidated Financial Statements (unaudited)
 
7
         
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
22
         
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
26
         
 
Item 4.
Controls and Procedures
 
27
         
Part II.
Other Information
   
         
 
Item 6.
Exhibits and Reports on Form 8-K
 
28
 
 
2

 

PART I. FINANCIAL INFORMATION

Item 1.             Consolidated Financial Statements

J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)

   
December 25,
   
September 25,
 
   
2010
   
2010
 
   
(Unaudited)
       
ASSETS
           
Current assets
           
Cash and cash equivalents
  $ 89,343     $ 74,665  
Marketable securities held to maturity
    28,570       15,481  
Accounts receivable, net
    53,846       69,875  
Inventories, net
    56,800       50,630  
Prepaid expenses and other
    2,994       6,067  
Deferred income taxes
    3,834       3,813  
      235,387       220,531  
                 
Property, plant and equipment, at cost
               
Land
    2,016       2,016  
Buildings
    13,266       13,266  
Plant machinery and equipment
    147,199       144,697  
Marketing equipment
    215,852       214,545  
Transportation equipment
    3,811       3,785  
Office equipment
    12,727       12,690  
Improvements
    19,622       19,590  
Construction in progress
    3,457       3,814  
      417,950       414,403  
                 
Less accumulated depreciation and amortization
    309,049       304,311  
      108,901       110,092  
Other assets
               
Goodwill
    70,070       70,070  
Other intangible assets, net
    53,991       55,284  
Marketable securities held to maturity
    8,196       26,300  
Other
    2,183       1,717  
      134,440       153,371  
    $ 478,728     $ 483,994  

See accompanying notes to the consolidated financial statements.

 
3

 

J & J SNACK FOODS CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS – Continued
(in thousands)

   
December 25,
   
September 25,
 
   
2010
   
2010
 
   
(unaudited)
       
             
LIABILITIES AND STOCKHOLDERS’ EQUITY
           
Current liabilities
           
Current obligations under capital leases
  $ 247       244  
Accounts payable
    46,096       52,338  
Accrued liabilities
    3,523       4,269  
Accrued compensation expense
    7,331       12,244  
Dividends payable
    2,178       1,986  
                 
      59,375       71,081  
                 
Long-term obligations under capital leases
    556       619  
Deferred income taxes
    30,401       30,401  
Other long-term liabilities
    1,163       1,318  
      32,120       32,338  
                 
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, 18,542 and
18,491 shares, respectively
    40,147       38,453  
Accumulated other comprehensive loss
    (2,806 )     (2,854 )
Retained earnings
    349,892       344,976  
                 
      387,233       380,575  
    $ 478,728     $ 483,994  

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 25,
   
December 26,
 
   
2010
   
2009
 
             
Net Sales
  $ 155,632     $ 149,102  
                 
Cost of goods sold(1)
    109,531       103,083  
                 
Gross profit
    46,101       46,019  
                 
Operating expenses
               
Marketing(2)
    16,682       16,459  
Distribution(3)
    12,864       12,424  
Administrative(4)
    5,628       5,654  
Other general income
    (46 )     (9 )
      35,128       34,528  
                 
Operating income
    10,973       11,491  
                 
Other income (expenses)
               
Investment income
    236       312  
Interest expense and other
    (36 )     (29 )
                 
Earnings before income taxes
    11,173       11,774  
                 
Income taxes
    4,079       4,683  
                 
NET EARNINGS
  $ 7,094     $ 7,091  
                 
Earnings per diluted share
  $ .38     $ .38  
                 
Weighted average number of diluted shares
    18,702       18,717  
                 
Earnings per basic share
  $ .38     $ .38  
                 
Weighted average number of basic shares
    18,578       18,544  

(1)
Includes share-based compensation expense of $52 and $58 for the three months ended December 25, 2010 and December 26, 2009, respectively.
(2)
Includes share-based compensation expense of $114 and $144 for the three months ended December 25, 2010 and December 26, 2009, respectively.
(3)
Includes share-based compensation expense of $6 and $7 for the three months ended December 25, 2010 and December 26, 2009, respectively.
(4)
Includes share-based compensation expense of $106 and $174 for the three months ended December 25, 2010 and December 26, 2009, respectively.

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 25,
   
December 26,
 
   
2010
   
2009
 
Operating activities:
           
Net earnings
  $ 7,094     $ 7,091  
Adjustments to reconcile net earnings to net cash provided by operating activities:
               
Depreciation and amortization of fixed assets
    6,246       5,879  
Amortization of intangibles and deferred costs
    1,411       1,271  
Share-based compensation
    278       383  
Deferred income taxes
    (21 )     (100 )
Other
    14       23  
Changes in assets and liabilities, net of effects from purchase of companies
               
Decrease in accounts receivable
    16,039       12,531  
Increase in inventories
    (6,386 )     (7,028 )
Decrease (increase) in prepaid expenses
    3,074       (396 )
Decrease in accounts payable and accrued liabilities
    (12,060 )     (4,139 )
Net cash provided by operating activities
    15,689       15,515  
Investing activities:
               
Purchase of property, plant and equipment
    (5,129 )     (7,450 )
Purchase of marketable securities
    (4,295 )     (22,496 )
Proceeds from redemption of marketable securities
    9,310       22,440  
Proceeds from disposal of property and equipment
    70       89  
Other
    (359 )     (3 )
Net cash used in investing activities
    (403 )     (7,420 )
Financing activities:
               
Payments to repurchase common stock
    -       (5,894 )
Proceeds from issuance of common stock
    1,415       36  
Payments on capitalized lease obligations
    (60 )     (24 )
Payments of cash dividend
    (1,986 )     (1,804 )
Net cash used in financing activities
    (631 )     (7,686 )
Effect of exchange rate on cash and cash equivalents
    23       183  
Net increase in cash and cash equivalents
    14,678       592  
Cash and cash equivalents at beginning of period
    74,665       60,343  
Cash and cash equivalents at end of period
  $ 89,343     $ 60,935  

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 25, 2010 and December 26, 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 our Annual Report on Form 10-K for the fiscal year ended September 25, 2010.

Note 2
We recognize revenue from our products when the products are shipped to our customers. Repair and maintenance equipment service revenue is recorded when it is performed provided the customer terms are that the customer is to be charged on a time and material basis or on a straight-line basis over the term of the contract when the customer has signed a service contract. Revenue is recognized only where persuasive evidence of an arrangement exists, our price is fixed or estimable and collectability is reasonably assured.  We record offsets to revenue for allowances, end-user pricing adjustments, trade spending, coupon redemption costs and returned product.  Customers generally do not have the right to return product unless it is damaged or defective.  We provide an allowance for doubtful receivables after taking into consideration historical experience and other factors.  The allowance for doubtful receivables was $769,000 and $591,000 at December 25, 2010 and September 25, 2010, respectively.

 
7

 

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, customer relationships and non compete agreements arising from acquisitions are amortized by the straight-line method over periods ranging from 3 to 20 years.

Note 4
Basic earnings per common share (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. Our calculation of EPS is as follows:

   
Three Months Ended December 25, 2010
 
    
Income
   
Shares
   
Per Share
 
    
(Numerator)
   
(Denominator)
   
Amount
 
    
(in thousands, except per share amounts)
 
Basic EPS
                 
Net Earnings available to common stockholders
  $ 7,094       18,578     $ .38  
                         
Effect of Dilutive Securities                         
Options
    -       124       -  
                         
Diluted EPS
                       
Net Earnings available to common stockholders plus assumed conversions
  $ 7,094       18,702     $ .38  
 
 
8

 

   
Three Months Ended December 26, 2009
 
    
Income
   
Shares
   
Per Share
 
    
(Numerator)
   
(Denominator)
   
Amount
 
    
(in thousands, except per share amounts)
 
Basic EPS
                 
Net Earnings available to common stockholders
  $ 7,091       18,544     $ .38  
                         
Effect of Dilutive Securities                         
Options
    -       173       -  
                         
Diluted EPS
                       
Net Earnings available to common stockholders plus assumed conversions
  $ 7,091       18,717     $ .38  

93,200 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.

Note 5
Our calculation of comprehensive income is as follows:

   
Three months ended
 
    
December 25,
   
December 26,
 
    
2010
   
2009
 
    
(in thousands)
 
             
Net earnings
  $ 7,094     $ 7,091  
Foreign currency translation adjustment
    48       266  
Comprehensive income
  $ 7,142     $ 7,357  

Note 6
At December 25, 2010, the Company has three stock-based employee compensation plans.  Share-based compensation was recognized as follows:

 
9

 

   
Three months ended
 
    
December 25,
   
December 26,
 
    
2010
   
2009
 
    
(in thousands, except per share amounts)
 
             
Stock Options
  $ 8     $ 219  
Stock purchase plan
    98       67  
Deferred stock issued to outside directors
    -       35  
Restricted stock issued to an employee
    -       10  
    $ 106     $ 331  
                 
Per diluted share
  $ .01     $ .02  
                 
The above compensation is net of tax benefits
  $ 172     $ 52  

The Company anticipates that share-based compensation will not exceed $800,000, net of tax benefits, or approximately $.04 per share for the fiscal year ending September 24, 2011.

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 the 2010 first quarter: expected volatility of 28%; risk-free interest rate of 2.14%;  dividend rate of 1.2% and expected lives ranging between 5 and 10 years.

During the 2010 first quarter, the Company granted 100,330 stock options.  The weighted-average grant date fair value of these options was $9.11.  The Company did not grant any stock options in the 2011 first quarter.

Expected volatility is based on the historical volatility of the price of our common shares over the past 54 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.

 
10

 

Note 7
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 that will be in effect when these differences reverse.  Deferred tax expense is the result of changes in deferred tax assets and liabilities.
 
 
Additionally, we recognize a liability for income taxes and associated penalties and interest for tax positions taken or expected to be taken in a tax return which are more likely than not to be overturned by taxing authorities (“uncertain tax positions”).  We have not recognized a tax benefit in our financial statements for these uncertain tax positions.  

The total amount of gross unrecognized tax benefits is $1,108,000 and $1,249,000 on December 25, 2010 and September 25, 2010, 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 December 25, 2010 and September 25, 2010, respectively, the Company has $382,000 and $429,000 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.

 
11

 

Note 8
In January 2010, the FASB issued guidance that amends existing disclosure requirements of fair value measurements adding required disclosures about items transferring into and out of Levels 1 and 2 in the fair value hierarchy; adding separate disclosures about purchases, sales, issuances, and settlements relative to Level 3 measurements; and clarifying, among other things, the existing fair value disclosures about the level of disaggregation. This guidance was effective for our fiscal year beginning September 26, 2010, except for the requirement to provide Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which will be effective for our fiscal year beginning September 25, 2011. Since this standard impacts disclosure requirements only, its adoption has not and will not have any impact on the Company’s consolidated results of operations or financial condition.

In December 2010, the FASB issued guidance which requires that if a company presents comparative financial statements to include business combinations, the company should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. This guidance also expands the supplemental pro forma adjustments to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. This guidance is effective for our fiscal year beginning September 25, 2011. The adoption of this guidance will not have a material impact on the Company’s financial position, results of operations or cash flows.

 
12

 

Note 9 
Inventories consist of the following:

   
December 25,
   
September 25,
 
   
2010
   
2010
 
   
(unaudited)
       
   
(in thousands)
 
             
Finished goods
  $ 25,917     $ 22,171  
Raw materials
    10,382       8,702  
Packaging materials
    5,008       4,727  
Equipment parts & other
    15,493       15,030  
    $ 56,800     $ 50,630  
                 
The above inventories are net of reserves
  $ 4,458     $ 4,189  

Note 10
We principally sell our products to the food service and retail supermarket industries.  We also distribute our products directly to the consumer  through our two 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.

 
13

 

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 by the retail supermarket segment 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, WHOLE FRUIT frozen fruit bars, WHOLE FRUIT Sorbet, ICEE Squeeze-Up Tubes and TIO PEPE’S Churros.  Within the retail supermarket channel, 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 two BAVARIAN PRETZEL BAKERY retail stores.

Frozen Beverages

We sell frozen beverages and related products 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 Chief Operating Decision Maker for Food Service, Retail Supermarkets and The Restaurant Group 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.  Sales is considered to be the one and only key variable monitored by the Chief Operating Decision Makers and management when determining each segment’s and the company’s financial condition and operating performance.  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:

 
14

 
 
   
As of and For the Three Months Ended
 
   
December 25,
   
December 26,
 
   
2010
   
2009
 
   
(in thousands)
 
             
Sales to External Customers:
           
Food Service
           
Soft pretzels
  $ 24,384     $ 24,331  
Frozen juices and ices
    7,642       7,727  
Churros
    10,089       6,761  
Bakery
    58,212       57,468  
Other
    4,753       4,974  
    $ 105,080     $ 101,261  
                 
Retail Supermarket
               
Soft pretzels
  $ 7,835     $ 7,702  
Frozen juices and ices
    6,501       5,528  
Coupon redemption
    (697 )     (776 )
Other
    483       166  
    $ 14,122     $ 12,620  
                 
The Restaurant Group
  $ 205     $ 322  
                 
Frozen Beverages
               
Beverages
  $ 23,687     $ 22,432  
Repair and maintenance service
    9,813       9,957  
Machine sales
    2,347       2,092  
Other
    378       418  
    $ 36,225     $ 34,899  
                 
Consolidated Sales
  $ 155,632     $ 149,102  
                 
Depreciation and Amortization:
               
Food Service
  $ 4,322     $ 4,161  
Retail Supermarket
    -       -  
The Restaurant Group
    5       8  
Frozen Beverages
    3,330       2,981  
    $ 7,657     $ 7,150  
                 
Operating Income(Loss):
               
Food Service
  $ 11,097     $ 10,472  
Retail Supermarket
    2,051       1,753  
The Restaurant Group
    46       21  
Frozen Beverages
    (2,221 )     (755 )
    $ 10,973     $ 11,491  
                 
Capital Expenditures:
               
Food Service
  $ 2,639     $ 3,173  
Retail Supermarket
    -       -  
The Restaurant Group
    -       -  
Frozen Beverages
    2,490       4,277  
    $ 5,129     $ 7,450  
                 
Assets:
               
Food Service
  $ 344,687     $ 309,033  
Retail Supermarket
    -       -  
The Restaurant Group
    523       591  
Frozen Beverages
    133,518       126,170  
    $ 478,728     $ 435,794  
 
 
15

 
 
Note 11
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 25, 2010 and September 25, 2010 are as follows:
 
 
16

 
 
   
December 25, 2010
   
September 25, 2010
 
   
Gross
   
 
   
Gross
       
   
Carrying
   
Accumulated
   
Carrying
   
Accumulated
 
   
Amount
   
Amortization
   
Amount
   
Amortization
 
   
(in thousands)
 
FOOD SERVICE
                       
                         
Indefinite lived intangible assets
                       
Trade Names
  $ 12,204     $ -     $ 12,204     $ -  
                                 
Amortized intangible assets
                               
Non compete agreements
    470       370       470       351  
Customer relationships
    40,024       16,188       40,024       15,160  
Licenses and rights
    3,606       2,343       3,606       2,287  
    $ 56,304     $ 18,901     $ 56,304     $ 17,798  
                                 
RETAIL SUPERMARKETS
                               
                                 
Indefinite lived intangible assets
                               
Trade Names
  $ 2,731     $ -     $ 2,731     $ -  
THE RESTAURANT GROUP
                               
                                 
Amortized intangible assets
                               
Licenses and rights
  $ -     $ -     $ -     $ -  
                                 
FROZEN BEVERAGES
                               
                                 
Indefinite lived intangible assets
                               
Trade Names
  $ 9,315     $ -     $ 9,315     $ -  
                                 
Amortized intangible assets
                               
Non compete agreements
    198       171       198       165  
Customer relationships
    6,478       3,042       6,478       2,876  
Licenses and rights
    1,601       522       1,601       504  
    $ 17,592     $ 3,735     $ 17,592     $ 3,545  

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.  There were no changes in the gross carrying amount of intangible assets for the three months ended December 25, 2010.  Aggregate amortization expense of intangible assets for the 3 months ended December 25, 2010 and December 26, 2009 was $1,293,000 and $1,124,000, respectively.
Estimated amortization expense for the next five fiscal years is approximately $4,800,000 in 2011, $4,400,000 in 2012, 2013 and 2014 and $4,300,000 in 2015.
 
 
17

 
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, Restaurant Group and Frozen Beverage segments are as follows:

   
Food
   
Retail
   
Restaurant
   
Frozen
       
   
Service
   
Supermarket
   
Group
   
Beverages
   
Total
 
   
(in thousands)
 
Balance at December 25, 2010
  $ 33,744     $ -     $ 386     $ 35,940     $ 70,070  

There were no changes in the carrying amounts of goodwill for the three months ended December 25, 2010.
 
Note 12
We have classified our investment securities as marketable securities held to maturity.  The FASB defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the FASB has established three levels of inputs that may be used to measure fair value:
 
Level 1
Observable inputs such as quoted prices in active markets for identical assets or liabilities;
 
Level 2
Observable inputs, other than Level 1 inputs in active markets, that are observable either directly or indirectly; and
 
Level 3
Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.

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.

 
18

 
 
The amortized cost, unrealized gains and losses, and fair market values of our investment securities held to maturity at December 25, 2010 are summarized as follows:

         
Gross
   
Gross
   
Fair
 
   
Amortized
   
Unrealized
   
Unrealized
   
Market
 
   
Cost
   
Gains
   
Losses
   
Value
 
   
(in thousands)
 
                         
US Government Agency Debt
  $ 8,000     $ 24     $ 22     $ 8,002  
FDIC Backed Corporate Debt
    8,082       105       -       8,187  
Certificates of Deposit
    20,684       3       -       20,687  
    $ 36,766     $ 132     $ 22     $ 36,876  
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 25, 2010 are summarized as follows:

   
 
   
Gross
   
Gross
   
Fair
 
   
Amortized
   
Unrealized
   
Unrealized
   
Market
 
   
Cost
   
Gains
   
Losses
   
Value
 
   
(in thousands)
 
                         
US Government Agency Debt
  $ 8,000     $ 53     $ -     $ 8,053  
FDIC Backed Corporate Debt
    13,107       144       -       13,251  
Certificates of Deposit
    20,674       5       -       20,679  
    $ 41,781     $ 202     $ -     $ 41,983  
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 25, 2010 and September 25, 2010 are summarized as follows:
 
 
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December 25, 2010
   
September 25, 2010
 
   
(in thousands)
 
         
Fair
         
Fair
 
   
Amortized
   
Market
   
Amortized
   
Market
 
   
Cost
   
Value
   
Cost
   
Value
 
                         
Due in one year or less
  $ 28,570     $ 28,675     $ 15,481     $ 15,501  
Due after one year through five years
    8,196       8,201       26,300       26,482  
Total held to maturity securities
  $ 36,766     $ 36,876     $ 41,781     $ 41,983  
Less current portion
    28,570       28,675       15,481       15,501  
Long term held to maturity securities
  $ 8,196     $ 8,201     $ 26,300     $ 26,482  
 
Proceeds from the redemption of marketable securities were $9,310,000 and $22,440,000 in the three months ended December 25, 2010 and December 26, 2009, respectively, with no gain or loss recorded.  We use the specific identification method to determine the cost of securities sold.

Note 13
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.  Revenues from Parrot Ice were approximately $1.5 million for our 2010 fiscal year.

On June 10, 2010 we acquired the assets of California Churros, Inc., a manufacturer and seller of a premium brand churro.  Revenues from CALIFORNIA CHURROS were approximately $2.5 million for our 2010 fiscal year.

 
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.
 
The purchase price allocation for the California Churros acquisition and other acquisitions, including Parrot Ice, which were made during the 2010 fiscal year is as follows:
 
 
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California
       
   
Churros
   
Other
 
   
(in thousands)
 
             
Working Capital
  $ 1,075     $ -  
Property, plant & equipment
    2,373       1,135  
Trade Names
    4,024       -  
Customer Relationships
    6,737       -  
Covenant not to Compete
    35       50  
Goodwill
    9,756       -  
    $ 24,000     $ 1,185  

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).

 
21

 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 $.1175 per share of its common stock payable on January 5, 2011 to shareholders of record as of the close of business on December 15, 2010.

 
In the year ended September 25, 2010, we purchased and retired 203,507 shares of our common stock at a cost of $7,768,000 under a million share buyback authorization approved by the Company’s Board of Directors in February 2008 leaving 210,772 as the number of shares that may yet be purchased under the share buyback authorization.

In the three months ended December 25, 2010 and December 26, 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 a decrease of $48,000 in accumulated other comprehensive loss in the 2011 first quarter and a decrease of $266,000 in the 2010 first quarter.

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.  Revenues from Parrot Ice were approximately $1.5 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 $2.5 million in our 2010 fiscal year.

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 December 25, 2010.

 
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Results of Operations

Net sales increased $6,530,000 or 4% to $155,632,000 for the three months ended December 25, 2010 compared to the three months ended December 26, 2009.
Excluding sales from the acquisition of Parrot Ice in  February 2010 and California Churros in June 2010, sales increased 2% for the three months.
FOOD SERVICE

 
Sales to food service customers increased $3,819,000 or 4% in the first quarter to $105,080,000.  Excluding sales from the acquisition of California Churros, food service sales increased 1% for the quarter.  Soft pretzel sales to the food service market increased $53,000 or less than 1% from last year to $24,384,000 in this year’s quarter.  Italian ice and frozen juice treat and dessert sales decreased 1% to $7,642,000 in the three months.  Churro sales to food service customers increased 49% to $10,089,000 in the quarter.  Without sales from California Churros, churros sales for the quarter increased 7% with sales increases spread among many customers.
Sales of bakery products excluding biscuit and dumpling sales and fruit and fig bar sales increased $1,521,000, or 4% for the quarter driven by increased sales to private label customers.  Biscuit and dumpling sales increased 2% for the quarter to $9,857,000 this year.
Sales of fruit and fig bars decreased $975,000, or 12%, to $6,826,000 in this year’s quarter with one customer accounting for about 40% of the decrease and the balance of the decrease spread across many customers.
Sales of funnel cake fries were down $349,000, or 7%, in the quarter with sales to one customer down $938,000, or 30%, from a year ago.  That one customer accounted for $12.7 million of sales of funnel cake fries in our fiscal year 2010, of which $9.6 million were in the last nine months.  We anticipate that sales to this customer will be significantly lower the last nine months of our fiscal year 2011 compared to the last nine months of our fiscal year 2010.
  
Sales of new products in the first twelve months since their introduction were approximately $3.5 million in the December quarter.  Net volume increases, including new product sales as defined above and sales resulting from the acquisition of California Churros, accounted for all but approximately $300,000 of the sales increases this year.  Price increases accounted for the remaining $300,000.

 
23

 

 
Operating income in our Food Service segment increased from $10,472,000 to $11,097,000 in the quarter primarily as a result of increased volume as discussed above.  In the quarter, ingredients and packaging costs were about $2 million higher than a year ago.

RETAIL SUPERMARKETS

Sales of products to retail supermarkets increased $1,502,000 to $14,122,000 or 12% in the first quarter. Soft pretzel sales were up 2% to $7,835,000 on a unit volume decrease of 1% and sales of frozen juices and ices increased 18% to $6,501,000 on a unit volume increase of 24%. Coupon redemption costs, a reduction of sales, decreased by $79,000 or 10% in the quarter.

Sales of products in the first twelve months since their introduction were approximately $600,000 in the December quarter.  Net volume increases, including new product sales as defined above and net of decreased coupon costs and slightly lower levels of trade spending, accounted for virtually all of the sales increases in the quarter.  Operating income in our Retail Supermarkets segment increased from $1,753,000 to $2,051,000 in the quarter primarily as a result of volume increases.

THE RESTAURANT GROUP

Sales of our Restaurant Group decreased 36% to $205,000 in the first quarter.  The sales decrease was caused by the closing of stores in fiscal year 2010.  Sales of our two stores open for both years’ quarter were up 1%.  Operating income in our Restaurant Group segment increased from $21,000 to $46,000 in the quarter as a result of closing unprofitable stores last year.

 
24

 

FROZEN BEVERAGES

Frozen beverage and related product sales increased $1,326,000 or 4% to $36,225,000 in the first quarter. Beverage sales alone were up 6% to $23,687,000 for the quarter with increased sales spread across our customer base.  Gallon sales were up 3% in our base ICEE business with over 75% of the increase resulting from sales to one customer.  Service revenue decreased  1% to $9,813,000 in this year’s first quarter.

Sales of beverage machines, which tend to fluctuate from year to year while following no specific trend, were $255,000 higher this year than last in the three month period.  The estimated number of company owned frozen beverage dispensers was 39,100 and 38,600 at December 25, 2010 and September 25, 2010, respectively.  Operating loss in our Frozen Beverage segment increased $1,466,000  in the quarter primarily because of higher payroll expenses and expenses related to the maintenance of company owned frozen beverage dispensers.  Higher gasoline costs of approximately $160,000 impacted the December quarter.  We expect higher gasoline costs to impact operating income for at least the balance of our fiscal year.

CONSOLIDATED

Gross profit as a percentage of sales decreased to 29.62% in the three month period from 30.86% last year. Higher ingredient and packaging costs compared to last year of approximately $2.3 million for the quarter and higher expenses in our Frozen Beverages segment were primarily responsible for the decreased gross profit percentage in the quarter. Ingredient and packaging costs can be extremely volatile and may be significantly different from what we are presently expecting and therefore we cannot project the impact of ingredient and packaging costs on our business going forward; however, there has been a very significant increase in the market cost of flour since June 2010 and the cost of other commodities has increased as well over the past year. We anticipate these market cost increases will result in higher costs to the company over the remaining nine months of our fiscal year 2011. Although we are implementing price increases to defray the impact of a portion or all of these cost increases, the impact of these higher costs and increased costs in operational areas may result in lower net earnings over the remaining nine months of our fiscal year 2011 compared to our fiscal year 2010.

 
25

 

Total operating expenses increased $600,000 in the first quarter but as a percentage of sales decreased .59 of a percentage point and remained at 23% of sales. Marketing expenses were at 11% of sales in both years. Distribution expenses were at 8% of sales in both years. Administrative expenses as a percent of sales were 4% of sales for both years.

Operating income decreased 5% to $10,973,000 this year from $11,491,000 a year ago.

Investment income decreased by $76,000 to $236,000 due to a general decline in the level of interest rates. We expect this trend to continue for the foreseeable future.

The effective income tax rate decreased to 37% from 40% last year. About 40% of the decrease was from the reduction of $141,000 of unrecognized tax benefits. We are estimating an effective income tax rate of between 38% and 39% for the year.

Net earnings of $7,094,000 in this year’s first quarter compared to net earnings of $7,091,000 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 2010 annual report on Form 10-K filed with the SEC.

 
26

 

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 25, 2010, 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.

 
27

 

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 3, 2010 and November 30, 2010.

 
28

 

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 20, 2011
/s/ Gerald B. Shreiber
 
Gerald B. Shreiber
 
Chairman of the Board,
 
President, Chief Executive
 
Officer and Director
 
 (Principal Executive Officer)
   
Dated:    January 20, 2011
/s/ Dennis G. Moore
 
Dennis G. Moore, Senior Vice
 
President, Chief Financial
 
Officer and Director
 
 (Principal Financial Officer)
 
 (Principal Accounting Officer)
   
29