Unassociated Document
  
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 March 26, 2011

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 April 18, 2011, there were 18,583,974 shares of the Registrant’s Common Stock outstanding.
 
 
 

 

 
INDEX

         
Page
       
Number
     
Part I.   Financial Information
   
     
 
Item l.
Consolidated Financial Statements
   
         
 
Consolidated Balance Sheets – March 26, 2011
   
 
(unaudited) and September 25, 2010
 
3
         
 
Consolidated Statements of Earnings (unaudited)
   
 
 – Three Months and Six Months Ended March 26,
   
 
 2011 and March 27, 2010
 
5
         
 
Consolidated Statements of Cash Flows (unaudited)
   
 
 – Six Months Ended March 26, 2011 and March 27, 2010
 
6
       
 
Notes to the Consolidated Financial Statements (unaudited)
 
7
         
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
23
         
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
28
         
 
Item 4.
Controls and Procedures
 
28
     
Part II.   Other Information
   
     
 
Item 4.
Submission of Matters to a Vote of Security Holders
 
29
         
 
Item 6.
Exhibits and Reports on Form 8-K
 
29

 
2

 
 
I. FINANCIAL INFORMATION
Item 1.
Consolidated Financial Statements

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

   
March 26,
   
September 25,
 
   
2011
   
2010
 
   
(Unaudited)
       
ASSETS            
             
Current assets
           
Cash and cash equivalents
  $ 96,436     $ 74,665  
Marketable securities held to maturity
    25,550       15,481  
Accounts receivable, net
    64,447       69,875  
Inventories, net
    57,210       50,630  
Prepaid expenses and other
    2,782       6,067  
Deferred income taxes
    3,855       3,813  
      250,280       220,531  
                 
Property, plant and equipment, at cost
               
Land
    2,016       2,016  
Buildings
    13,266       13,266  
Plant machinery and equipment
    147,849       144,697  
Marketing equipment
    217,810       214,545  
Transportation equipment
    3,895       3,785  
Office equipment
    12,949       12,690  
Improvements
    20,582       19,590  
Construction in progress
    3,184       3,814  
      421,551       414,403  
Less accumulated depreciation and amortization
    313,235       304,311  
                 
      108,316       110,092  
                 
Other assets
               
Goodwill
    70,070       70,070  
Other intangible assets, net
    52,735       55,284  
Marketable securities held to maturity
    10,998       26,300  
Other
    2,239       1,717  
      136,042       153,371  
    $ 494,638     $ 483,994  

See accompanying notes to the consolidated financial statements.
 
 
3

 

J & J SNACK FOODS CORP. AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS – Continued
(in thousands)
  
   
March 26,
   
September 25
 
   
2011
   
2010
 
   
(Unaudited)
       
             
LIABILITIES AND STOCKHOLDERS’ EQUITY            
             
Current liabilities
           
Current obligations under capital leases
  $ 250     $ 244  
Accounts payable
    49,138       52,338  
Accrued liabilities
    6,789       4,269  
Accrued compensation expense
    9,138       12,244  
Dividends payable
    2,183       1,986  
                 
      67,498       71,081  
                 
Long-term obligations under  capital leases
    493       619  
Deferred income taxes
    30,401       30,401  
Other long-term liabilities
    1,167    
1,318
 
      32,061       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, 18,579 and 18,491 shares,  respectively
    41,083       38,453  
Accumulated other comprehensive loss
    (2,373 )     (2,854 )
Retained earnings
    356,369       344,976  
                 
      395,079       380,575  
    $ 494,638     $ 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
   
Six months ended
 
   
March 26,
   
March 27,
   
March 26,
   
March 27,
 
   
2011
   
2010
   
2011
   
2010
 
                                 
Net Sales
  $ 162,731     $ 157,361     $ 318,363     $ 306,463  
                                 
Cost of goods sold(1)
    113,709       107,564       223,240       210,647  
Gross profit
    49,022       49,797       95,123       95,816  
                                 
Operating expenses
                               
Marketing(2)
    16,260       16,428       32,942       32,887  
Distribution(3)
    12,808       12,564       25,672       24,988  
Administrative(4)
    5,907       5,972       11,535       11,626  
Other general expense
    93       13       47       4  
      35,068       34,977       70,196       69,505  
                                 
Operating income
    13,954       14,820       24,927       26,311  
                                 
Other income (expenses)
                               
Investment income
    207       282       443       594  
Interest expense & other
    (36 )     (84 )     (72 )     (113 )
                                 
Earnings before income taxes
    14,125       15,018       25,298       26,792  
                                 
Income taxes
    5,466       6,018       9,545       10,701  
                                 
NET EARNINGS
  $ 8,659     $ 9,000     $ 15,753     $ 16,091  
                                 
Earnings per diluted share
  $ .46     $ .48     $ .84     $ .86  
                                 
Weighted average number of diluted shares
    18,767       18,666       18,734       18,691  
                                 
Earnings per basic share
  $ .46     $ .49     $ .85     $ .87  
                                 
Weighted average number of basic shares
    18,638       18,477       18,608       18,510  

(1)
Includes share-based compensation expense of $29 and $81 for the three and six months ended March 26, 2011, respectively and $41 and $99 for the three and six months ended March 27, 2010, respectively.
(2)
Includes share-based compensation expense of $65 and $179 for the three and six months ended March 26, 2011, respectively and $108 and $252 for the three and six months ended March 27, 2010, respectively.
(3)
Includes share-based compensation expense of $4 and $10 for the three and six months ended March 26, 2011, respectively and $5 and $12 for the three and six months ended March 27, 2010, respectively.
(4)
Includes share-based compensation expense of $135 and $241 for the three and six months ended March 26, 2011, respectively and $141 and $315 for the three and six months ended March 27, 2010, 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)
   
Six months ended
 
   
March 26,
   
March 27,
 
   
2011
   
2010
 
Operating activities:
           
Net earnings
  $ 15,753     $ 16,091  
Adjustments to reconcile net earnings to net cash provided by operating activities:
               
Depreciation and amortization of fixed assets
    12,362       11,948  
Amortization of intangibles and deferred costs
    2,779       2,567  
Share-based compensation
    511       678  
Deferred income taxes
    (36 )     (41 )
Other
    6       3  
Changes in assets and liabilities, net of effects from purchase of companies
               
Decrease in accounts receivable
    5,504       1,259  
Increase in inventories
    (6,739 )     (7,647 )
Decrease (increase) in prepaid expenses
    3,291       (462 )
Decrease in accounts payable and accrued liabilities
    (3,969 )     (4,030 )
Net cash provided by operating activities
    29,462       20,366  
Investing activities:
               
Payments for purchases of companies, net of cash acquired
    -       (1,055 )
Purchases of property, plant and equipment
    (10,617 )     (13,081 )
Purchase of marketable securities
    (20,293 )     (47,496 )
Proceeds from redemption and sales of marketable securities
    25,525       49,338  
Proceeds from disposal of property and equipment
    161       207  
Other
    (514 )     (6 )
Net cash used in investing activities
    (5,738 )     (12,093 )
Financing activities:
               
Payments to repurchase common stock
    -       (5,894 )
Proceeds from issuance of stock
    2,100       727  
Payments on capitalized lease obligations
    (120 )     (48 )
Payment of cash dividend
    (4,164 )     (3,782 )
Net cash used in financing activities
    (2,184 )     (8,997 )
Effect of exchange rate on cash and cash equivalents
    231       384  
Net increase (decrease) increase in cash and cash equivalents
    21,771       (340 )
Cash and cash equivalents at beginning of period
    74,665       60,343  
Cash and cash equivalents at end of period
  $ 96,436     $ 60,003  

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 and six months ended March 26, 2011 and March 27, 2010 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 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 $592,000 and $591,000 at March 26, 2011 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 March 26, 2011
 
   
Income
   
Shares
   
Per Share
 
   
(Numerator)
   
(Denominator)
   
Amount
 
   
(in thousands, except per share amounts)
 
                   
Basic EPS
                 
Net Earnings available to common stockholders
  $ 8,659       18,638       .46  
                         
Effect of Dilutive Securities
                       
Options
    -       129       -  
                         
Diluted EPS
                       
Net Earnings available to common stockholders plus assumed conversions
  $ 8,659       18,767     $ .46  
 
 
8

 
 
   
Six Months Ended March 26, 2011
 
   
Income
   
Shares
   
Per Share
 
   
(Numerator)
   
(Denominator)
   
Amount
 
   
(in thousands, except per share amounts)
 
                   
Basic EPS
                 
Net Earnings available to common stockholders
  $ 15,753       18,608     $ .85  
                         
Effect of Dilutive Securities
                       
Options
    -       126       (.01 )
                         
Diluted EPS
                       
Net Earnings available to common stockholders plus assumed conversions
  $ 15,753       18,734     $ .84  
  
   
Three Months Ended March 27, 2010
 
   
Income
   
Shares
   
Per Share
 
   
(Numerator)
   
(Denominator)
   
Amount
 
   
(in thousands, except per share amounts)
 
                   
Basic EPS
                 
Net Earnings available to common stockholders
  $ 9,000       18,477     $ .49  
                         
Effect of Dilutive Securities
                       
Options
    -       189       (.01 )
                         
Diluted EPS
                       
Net Earnings available to common stockholders plus assumed conversions
  $ 9,000       18,666     $ .48  
 
 
9

 
 
   
Six Months Ended March 27, 2010
 
   
Income
   
Shares
   
Per Share
 
   
(Numerator)
   
(Denominator)
   
Amount
 
   
(in thousands, except per share amounts)
 
                   
Basic EPS
                 
Net Earnings available to common stockholders
  $ 16,091       18,510     $ .87  
                         
Effect of Dilutive Securities
                       
Options
    -       181       (.01 )
                         
Diluted EPS
                       
Net Earnings available to common stockholders plus assumed conversions
  $ 16,091       18,691     $ .86  
 
94,200 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
   
Six months ended
 
   
March 26,
   
March 27,
   
March 26,
   
March 27,
 
   
2011
   
2010
   
2011
   
2010
 
   
(in thousands)
 
                         
Net earnings
  $ 8,659     $ 9,000     $ 15,753     $ 16,091  
Foreign currency translation adjustment
    433       285       481       551  
Comprehensive income
  $ 9,092     $ 9,285     $ 16,234     $ 16,642  
 
Note 6
At March 26, 2011, the Company has three stock-based employee compensation plans.  Share-based compensation was recognized as follows:
 
 
10

 
 
   
Three months ended
   
Six months ended
 
   
March 26,
   
March 27,
   
March 26,
   
March 27,
 
   
2011
   
2010
   
2011
   
2010
 
   
(in thousands, except per share amounts)
 
                         
Stock Options
  $ 92     $ 154     $ 100     $ 373  
Stock purchase plan
    34       32       132       99  
Deferred stock issued to outside directors
    46       34       46       69  
Restricted stock issued to an employee
    -       10       -       20  
    $ 172     $ 230     $ 278     $ 561  
                                 
Per diluted share
  $ .01     $ .01     $ .01     $ .03  
                                 
The above compensation is net of tax benefits
  $ 61     $ 65     $ 233     $ 117  
 
The Company anticipates that share-based compensation will not exceed $700,000, 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 fiscal 2010 first six months: 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 six month period, the Company granted 100,330 stock options.  The weighted-average grant date fair value of these options was $9.11.  No options were issued in the second quarter of 2010 or in the six month period ended March 26, 2011.

Expected volatility for both years 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.

 
11

 
 
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 $1,116,000 and $1,249,000 on March 26, 2011 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 March 26, 2011 and September 25, 2010, respectively, the Company has
$391,000 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.
 
 
12

 
 
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 quidance 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.

 
13

 
 
Note 9 
Inventories consist of the following:
 
   
March 26,
   
September 25,
 
   
2011
   
2010
 
   
(unaudited)
       
   
(in thousands)
 
             
Finished goods
  $ 25,873     $ 22,171  
Raw materials
    11,093       8,702  
Packaging materials
    5,009       4,727  
Equipment parts & other
    15,235       15,030  
    $ 57,210     $ 50,630  
                 
The above inventories are net of reserves
  $ 4,456     $ 4,189  
 
Note 10
We principally sell our products to the food service and retail supermarket industries.  Sales and results of our frozen beverages business are monitored separately from the balance of our food service business because of different distribution and capital requirements.  We maintain separate and discrete financial information for the three operating segments mentioned above which is available to our Chief Operating Decision Makers.

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. The Restaurant Group, operator of two BAVARIAN PRETZEL BAKERY retail stores with sales of $364,000 in the six months ended March 26, 2011, has been aggregated into Food Service because it no longer meets the quantitative thresholds under the guidance for reportable segments to be shown separately. 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.

 
 
14

 
 
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.

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 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:
 
 
15

 
 
   
Three Months Ended
   
Six Months Ended
 
   
March 26,
   
March 27,
   
March 26,
   
March 27,
 
   
2011
   
2010
   
2011
   
2010
 
   
(in thousands)
 
   
(unaudited)
 
       
Sales to External Customers:
                       
Food Service
                       
Soft pretzels
  $ 25,272     $ 25,437     $ 49,656     $ 49,768  
Frozen juices and ices
    11,086       9,644       18,728       17,371  
Churros
    10,165       7,159       20,254       13,920  
Bakery
    56,917       56,604       115,129       114,072  
Other
    4,373       6,501       9,331       11,797  
    $ 107,813     $ 105,345     $ 213,098     $ 206,928  
                                 
Retail Supermarket
                               
Soft pretzels
  $ 8,613     $ 8,201     $ 16,448     $ 15,903  
Frozen juices and ices
    8,975       7,278       15,476       12,806  
Coupon redemption
    (627 )     (579 )     (1,324 )     (1,355 )
Other
    227       208       710       374  
    $ 17,188     $ 15,108     $ 31,310     $ 27,728  
                                 
Frozen Beverages
                               
Beverages
  $ 24,842     $ 25,191     $ 48,529     $ 47,623  
Repair and maintenance service
    9,940       9,611       19,753       19,568  
Machine sales
    2,394       1,538       4,741       3,630  
Other
    554       568       932       986  
    $ 37,730     $ 36,908     $ 73,955     $ 71,807  
 
 
 
   
 
   
 
         
Consolidated Sales
  $ 162,731     $ 157,361     $ 318,363     $ 306,463  
                                 
Depreciation and Amortization:
                               
Food Service
  $ 4,176     $ 4,243     $ 8,503     $ 8,412  
Retail Supermarket
    -       -       -       -  
Frozen Beverages
    3,308       3,122       6,638       6,103  
    $ 7,484     $ 7,365     $ 15,141     $ 14,515  
                                 
Operating Income(Loss):
                               
Food Service
  $ 11,777     $ 12,838     $ 22,920     $ 23,331  
Retail Supermarket
    2,081       1,905       4,132       3,658  
Frozen Beverages
    96       77       (2,125 )     (678 )
    $ 13,954     $ 14,820     $ 24,927     $ 26,311  
                                 
Capital Expenditures:
                               
Food Service
  $ 2,588     $ 2,561     $ 5,227     $ 5,734  
Retail Supermarket
    -       -       -       -  
Frozen Beverages
    2,900       3,070       5,390       7,347  
    $ 5,488     $ 5,631     $ 10,617     $ 13,081  
                                 
Assets:
                               
Food Service
  $ 360,400     $ 314,025     $ 360,400     $ 314,025  
Retail Supermarket
    -       -       -       -  
Frozen Beverages
    134,238       130,199       134,238       130,199  
    $ 494,638     $ 444,224     $ 494,638     $ 444,224  
 
 
16

 
 
Note 11
Our three reporting units, which are also reportable segments, are Food Service, Retail Supermarkets and Frozen Beverages.

The carrying amounts of acquired intangible assets for the Food Service, Retail Supermarkets and Frozen Beverage segments as of March 26, 2011 and September 25, 2010 are as follows:
 
 
17

 
 
   
March 26, 2011
   
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       388       470       351  
Customer relationships
    40,024       17,203       40,024       15,160  
Licenses and rights
    3,606       2,377       3,606       2,287  
    $ 56,304     $ 19,968     $ 56,304     $ 17,798  
                                 
RETAIL SUPERMARKETS
                               
                                 
Indefinite lived intangible assets
                               
Trade Names
  $ 2,731     $ -     $ 2,731     $ -  
                                 
FROZEN BEVERAGES
                               
                                 
Indefinite lived intangible  assets
                               
Trade Names
  $ 9,315     $ -     $ 9,315     $ -  
                                 
Amortized intangible assets
                               
Non compete agreements
    198       177       198       165  
Customer relationships
    6,478       3,208       6,478       2,876  
Licenses and rights
    1,601       539       1,601       504  
    $ 17,592     $ 3,924     $ 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 March 26, 2011.  Aggregate amortization expense of intangible assets for the three months ended March 26, 2011 and March 27, 2010 was $1,256,000 and $1,121,000, respectively and for the six months ended March 26, 2011 and March 27, 2010 was $2,549,000 and $2,245,000, respectively.

 
 
18

 
 
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. 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:

   
Food
   
Retail
   
Frozen
       
   
Service
   
Supermarket
   
Beverages
   
Total
 
   
(in thousands)
 
Balance at March 26, 2011
  $ 34,130     $ -     $ 35,940     $ 70,070  
 
There were no changes in the carrying amounts of goodwill for the three months ended March 26, 2011.
 
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.
 
 
19

 
 
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.
 
The amortized cost, unrealized gains and losses, and fair market values of our investment securities held to maturity at March 26, 2011 are summarized as follows:
 
         
Gross
   
Gross
   
Fair
 
   
Amortized
   
Unrealized
   
Unrealized
   
Market
 
   
Cost
   
Gains
   
Losses
   
Value
 
   
(in thousands)
 
                         
US Government Agency Debt
  $ 10,998     $ 11     $ 36     $ 10,973  
FDIC Backed Corporate Debt
    8,059       84       -       8,143  
Certificates of Deposit
    17,491       3       -       17,494  
    $ 36,548     $ 98     $ 36     $ 36,610  

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 March 26, 2011 and September 25, 2010 are summarized as follows:

 
 
20

 
 
   
March 26, 2011
   
September 25, 2010
 
   
(in thousands)
 
         
Fair
         
Fair
 
   
Amortized
   
Market
   
Amortized
   
Market
 
   
Cost
   
Value
   
Cost
   
Value
 
                         
Due in one year or less
  $ 25,550     $ 25,637     $ 15,481     $ 15,501  
Due after one year through five years
    6,998       6,983       26,300       26,482  
Due after five years through ten years
    4,000       3,990       -       -  
Total held to maturity securities
  $ 36,548     $ 36,610     $ 41,781     $ 41,983  
Less current portion
    25,550       25,637       15,481       15,501  
Long term held to maturity  securities
  $ 10,998     $ 10,973     $ 26,300     $ 26,482  

Proceeds from the redemption and sale of marketable securities were $16,215,000 and $25,525,000 in the three and six months ended March 26, 2011, respectively; and $26,898,000 and $49,338,000 in the three and six months ended March 27, 2010, respectively. A gain of $27,000 was recorded    in the three and six months ended March 26, 2011.  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:
 
 
21

 
 
   
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).
 
Note 14 
On April 15, 2011, we  entered into an agreement to acquire the frozen handheld business of ConAgra Foods for $10 million.  The business sells dough enrobed products sold under the PATIO, HAND FULLS, HOLLY RIDGE BAKERY, VILLA TALIANO, TOP PICKS and private label brands with manufacturing facilities in Holly Ridge, North Carolina and Weston, Oregon.  We do not  expect the acquired business to contribute operating income to the Company over the short term.  The business is presently generating sales at an annual rate of approximately $50 million. Closing of the transaction is expected to be in May 2011.

 
22

 
 
Item 2.
Management’s Discussion and Analysis ofFinancial 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, 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 April 6, 2011 to shareholders of record as of the close of business on March 15, 2011.

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 March 26, 2011 and March 27, 2010, 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 $433,000 and a decrease of $285,000, respectively, in accumulated other comprehensive loss.  In the six month periods, there was a decrease of $481,000 in fiscal year 2011 and a decrease of $551,000 in fiscal year 2010.
 
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.
 
 
23

 
 
                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 March 26, 2011.

Results of Operations

Net sales increased $5,370,000 or 3% for the three months to $162,731,000 and $11,900,000 or 4% to $318,363,000 for the six months ended March 26, 2011 compared to the three and six months ended March 27, 2010.

Excluding sales from the acquisition of Parrot Ice in February 2010 and California Churros in June 2010, sales increased 1% for the three months and 2% for the six months.

FOOD SERVICE

Sales to food service customers increased $2,468,000 or 2% in the second quarter to $107,813,000 and increased $6,170,000 or 3% for the six months.  Excluding sales from the acquisition of California Churros, food service sales decreased 1% for the quarter and were essentially flat for the six months. Soft pretzel sales to the food service market decreased less than 1% to $25,272,000 in the second quarter and decreased less than 1% to $49,656,000 in the six months. Frozen juices and ices sales increased 15% to $11,086,000 in the three months and 8% to $18,728,000 in the six months primarily as the result of higher sales to school food service accounts.   Churro sales to food service customers increased 42% to $10,165,000 in the second quarter and were up 46% to $20,254,000 in the six months.  Without sales from California Churros, churros sales for the quarter decreased 5% and for the six months decreased 1%.
 
Sales of bakery products, excluding biscuit and dumpling sales and fruit and fig bar sales, increased $1,223,000 or 3% in the second quarter to $40,583,000 and increased $2,744,000 or 3% for the six months due primarily to increased sales to private label customers.  Biscuit and dumpling sales increased 4% to $9,390,000 in the quarter and were up 3% to $19,247,000 for the six months. Sales of fig and fruit bars decreased 15% in the second quarter to $6,944,000 and decreased 14% in the six months to $13,770,000 with lower sales spread across many customers.

 
 
24

 
 
Funnel cake sales decreased by $2,209,000 to $3,947,000 in the quarter and by $2,558,000 to $8,456,000 in the six months with sales to one customer down $3,281,000, or 77%, in the quarter and down $4,219,000, or 57%, in the six months.  This one customer accounted for $12.7 million of funnel cake fries in our fiscal year 2010, of which $5.3 million were in the last six months.  We anticipate no sales to this customer in the last six months of fiscal year 2011.

Sales of new products in the first twelve months since their introduction were approximately $4.3 million in the March quarter and $7.8 million in the six months. Price increases accounted for approximately $2,300,000 of sales in the March quarter and $2,600,000 in the six months and net volume increases, including new product sales as defined above and sales resulting from the acquisition of California Churros, accounted for approximately $150,000 of sales in the March quarter and $3,900,000 of sales in the six months.

Operating income in our Food Service segment decreased from $12,838,000 to $11,777,000 in the quarter and from $23,331,000 to $22,920,000 for the six months primarily as a result of higher commodity costs of about $2.5 million in the quarter and about $4.5 million for the six months.

RETAIL SUPERMARKETS

Sales of products to retail supermarkets increased $2,080,000 or 14% to $17,188,000 in the second quarter and were up 13% to $31,310,000 in the first half.  Soft pretzel sales for the second quarter were up 5% to $8,613,000 and were up 3% to $16,448,000 for the six months on unit volume increases of less than 1% for the quarter and for the six months.  Sales of frozen juices and ices increased $1,697,000 or 23% to $8,975,000 in the second quarter and were up 21% to $15,476,000 in the first half on a unit volume increase of 22% in the quarter and 20% for the six months. Coupon redemption costs, a reduction of sales, decreased 2% or about $31,000 for the six months and were down $48,000, or 8% in the quarter.

Sales of products in the first twelve months since their introduction were approximately $600,000 in the March quarter and $1.2 million in the six months. Price increases accounted for approximately $600,000 of sales in the March quarter and in the six months and net volume increases, including new product sales as defined above and net of decreased coupon costs, accounted for approximately $1,500,000 of sales in the March quarter and $3,600,000 of sales in the six months.  Operating income in our Retail Supermarkets segment increased from $1,905,000 to $2,081,000 in the quarter and
from $3,658,000 to $4,132,000 in the six months primarily as a result of volume increases.

 
 
25

 
  
FROZEN BEVERAGES

Frozen beverage and related product sales increased 2% to $37,730,000 in the second quarter and increased $2,148,000 or 3% to $73,955,000 in the six month period.  Beverage sales alone decreased 1% to $24,842,000 in the second quarter and were up 2% to $48,529,000 in the six months. Gallon sales were down 7% for the three months and 2% for the six months in our base ICEE business with lower sales to three customers accounting for all of the decrease.  Service revenue increased 3% to $9,940,000 in the second quarter and 1% to $19,753,000 for the six months.

Sales of beverage machines, which tend to fluctuate from year to year while following no specific trend, were $856,000 higher this year than last in the three month period and for the six months, sales of machines were higher by $1,111,000.  The estimated number of company owned frozen beverage dispensers was 38,600 and 37,600 at March 26, 2011 and September 25, 2010, respectively.  Operating income in our Frozen Beverage segment was essentially unchanged in the quarter and for the six months, operating loss increased $1,447,000. The increased loss in the six months resulted primarily from higher payroll expenses and expenses related to the maintenance of company owned frozen beverage dispensers in the first quarter. Higher gasoline costs of approximately $270,000 and $430,000 impacted the March quarter and six months, respectively.  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 30.12% in the three month period from 31.65% last year and decreased to 29.88% in the six month period from 31.27% a year ago.  Higher ingredient and packaging costs compared to last year of approximately $2.9 million for the quarter and $5.2 million for the six months and higher expenses in our Frozen Beverages segment were primarily responsible for the decreased gross profit percentages. 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 six months of our fiscal year 2011.  Although we have implemented 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 six months of our fiscal year 2011 compared to our fiscal year 2010.
 
 
26

 

Total operating expenses increased $91,000 in the second quarter and as a percentage of sales decreased about 2/3 of one percent and were 22% in both years.  For the first half, operating expenses increased $691,000, but as a percentage of sales decreased 2/3 of one percent to 22% of sales.  Marketing expenses decreased about 4/10 of one percent of sales in both the quarter and six months and were at 10% of sales in both years' quarter and decreased to 10% from 11% in the six months.  Moderate spending throughout our business and higher sales accounted for the percent of sales decrease.  Distribution expenses were 8% in all periods.  Administrative expenses were 4% of sales in all periods.

Operating income decreased $866,000 or 6% to $13,954,000 in the second quarter and $1,384,000 or 5% to $24,927,000 in the first half as a result of the aforementioned items.

Investment income decreased by $75,000 and $151,000 in the second quarter and six months, respectively, due to a general decline in the level of interest rates.
 
The effective income tax rate has been estimated at 39% and 40% for the quarter this year and last year respectively; and at 38% and 40% for the six months this year and last year respectively.  About 40% of the six month decrease was from the reduction of $141,000 of unrecognized tax benefits in the first quarter. We are estimating an effective income tax rate of between 38% and 39% for the year.

Net earnings decreased $341,000 or 4% in the current three month period to $8,659,000 and decreased 2% to $15,753,000 in the six months this year from $16,091,000 last year as a result of the aforementioned items.
 
 
27

 
 
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 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.

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 March 26, 2011, 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.
 
 
28

 
 
PART II.  OTHER INFORMATION

Item 4.
Submission of Matters to a Vote of Security Holders

The results of voting at the Annual Meeting of Shareholders held on February 9, 2011 is as follows:

         
Votes
               
Proposal One
 
Votes For
   
Withheld
               
Election of Peter G. Stanley as Director
    14,267,150       2,462,235                
                               
Proposal Two
 
Votes For
   
Votes Against
   
Votes Abstain
   
Broker Non-Vote
   
Advisory Vote on Approval of the Compensation of Executives
    15,695,530       714,098       113,994       205,763    
                                   
Proposal Three
 
Every 1 Year
   
Every Two Years
   
Every Three Years
   
Abstain
 
Broker Non-Vote
Advisory Vote  on the Frequency on Which Shareholders should have an Advisory Vote on the Approval of the Compensation of Executives
    9,443,275       128,843       6,725,688       0  
431,579

Based upon review of the above results of voting, the Board of Directors plans to submit Proposal Two for a shareholder vote at its Annual Meeting of Shareholders to be held in February 2012.
 
The Company had 18,530,334 shares outstanding on December 13, 2010 the record date.

Item 6.
Exhibits

 
 
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
 
 
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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:  April 25 2011
 
/s/ Gerald B. Shreiber
   
Gerald B. Shreiber
   
Chairman of the Board,
   
President, Chief Executive
   
Officer and Director
   
(Principal Executive Officer)
     
Dated:  April 25 2011
 
/s/ Dennis G. Moore
   
Dennis G. Moore, Senior Vice
   
President, Chief Financial
   
Officer and Director
   
(Principal Financial Officer)
 
  
(Principal Accounting Officer)

 
30