Edgar Filing: J&J SNACK FOODS CORP

jjsf20140331_10q.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 March 29, 2014

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

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).

X Yes

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 (X)	Accelerated filer ( )

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 April 21, 2014 there were 18,701,116 shares of the Registrant’s Common Stock outstanding.

INDEX

			Page Number

Part I. Financial Information

	Item l. Consolidated Financial Statements

		Consolidated Balance Sheets March 29, 2014 (unaudited) and September 28, 2013	3

		Consolidated Statements of Earnings (unaudited) – Three and Six Months Ended March 29, 2014 and March 30, 2013	4

		Consolidated Statements of Comprehensive Income (unaudited) – Three and Six Months Ended March 29, 2014 and March 30, 2013	5

		Consolidated Statements of Cash Flows (unaudited) – Six Months Ended March 29, 2014 and March 30, 2013	6

		Notes to the Consolidated Financial Statements (unaudited)	7

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		19

	Item 3. Quantitative and Qualitative Disclosures About Market Risk		23

	Item 4. Controls and Procedures		23

Part II. Other Information

	Item 6. Exhibits		24

J & J SNACK FOODS CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

	March 29, 2014 (unaudited)			September 28, 2013
Assets
Current assets
Cash and cash equivalents	$	77,301		$	97,345
Marketable securities held to maturity		-			256
Accounts receivable, net		86,870			87,545
Inventories, net		76,752			71,785
Prepaid expenses and other		3,918			3,284
Deferred income taxes		4,638			4,502
Total current assets		249,479			264,717

Property, plant and equipment, at cost
Land		2,496			2,496
Buildings		26,741			26,741
Plant machinery and equipment		188,172			179,331
Marketing equipment		252,260			244,770
Transportation equipment		6,730			5,953
Office equipment		17,847			16,282
Improvements		26,231			24,917
Construction in progress		4,600			9,952
		525,077			510,442
Less accumulated depreciation and amortization		369,822			363,278
		155,255			147,164

Other assets
Goodwill		84,615			76,899
Other intangible assets, net		42,575			44,012
Marketable securities held to maturity		2,000			2,000
Marketable securities available for sale		128,740			107,664
Other		3,330			3,205
		261,260			233,780
	$	665,994		$	645,661

Liability and Stockholder's Equity
Current Liabilities
Current obligations under capital leases	$	212		$	211
Accounts payable		54,226			50,906
Accrued insurance liability		10,044			9,954
Accrued income taxes		465			1,740
Accrued liabilities		4,913			3,769
Accrued compensation expense		10,153			13,671
Dividends payable		5,983			2,988
Total current liabilities		85,996			83,239

Long-term obligations under capital leases		430			136
Deferred income taxes		45,132			45,183
Other long-term liabilities		536			538

Stockholders' Equity
Preferred stock, $1 par value; authorized 10,000,000 shares; none issued		-			-
Common stock, no par value; authorized, 50,000,000 shares; issued and outstanding 18,701,000 and 18,677,000 respectively		36,712			34,516
Accumulated other comprehensive loss		(4,777	)		(5,930	)
Retained Earnings		501,965			487,979
		533,900			516,565
	$	665,994		$	645,661

The accompanying notes are an integral part of these statements.

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 29, 2014			March 30, 2013			March 29, 2014			March 30, 2013

Net Sales	$	205,321		$	201,326		$	408,844		$	392,734

Cost of goods sold⁽¹⁾		144,208			143,175			287,825			280,448
Gross Profit		61,113			58,151			121,019			112,286

Operating expenses
Marketing⁽²⁾		17,519			16,809			35,551			33,945
Distribution ⁽³⁾		16,382			15,713			32,502			31,113
Administrative ⁽⁴⁾		6,781			6,460			13,765			13,059
Other general expense (income)		99			10			898			(51	)
		40,781			38,992			82,716			78,066

Operating Income		20,332			19,159			38,303			34,220

Other income (expense)
Investment income		976			896			2,114			1,672
Interest expense & other		(27	)		(28	)		(63	)		(53	)

Earnings before income taxes		21,281			20,027			40,354			35,839

Income taxes		7,760			7,367			14,407			12,953

NET EARNINGS	$	13,521		$	12,660		$	25,947		$	22,886

Earnings per diluted share	$	0.72		$	0.67		$	1.38		$	1.21

Weighted average number of diluted shares		18,819			18,886			18,806			18,878

Earnings per basic share	$	0.72		$	0.67		$	1.39		$	1.22

Weighted average number of basic shares		18,693			18,800			18,686			18,803

(1)	Includes share-based compensation expense of $117 and $235 for the three months and six months ended March 29, 2014, respectively and $102 and $227 for the three months and six months ended March 30, 2013.

(2)	Includes share-based compensation expense of $170 and $340 for the three months and six months ended March 29,2014, respectively and $137 and $310 for the three months and six months ended March 30, 2013.

(3)	Includes share-based compensation expense of $11 and $21 for the three months and six months ended March 29, 2014, respectively and $7 and $15 for the three months and six months ended March 30, 2013.

(4)	Includes share-based compensation expense of $227 and $453 for the three months and six months ended March 29, 2014, respectively and $163 and $364 for the three months and six months ended March 30, 2013.

See accompanying notes to the consolidated financial statements

J&J SNACK FOODS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(in thousands)

	Three months ended					Six months ended
	March 29, 2014			March 30, 2013		March 29, 2014			March 30, 2013

Net Earnings	$	13,521		$	12,660	$	25,947		$	22,886

Foreign currency translation adjustments		(172	)		570		(276	)		447
Unrealized holding gain on marketable securities		956			166		1,429			184

Total Other Comprehensive Income, net of tax		784			736		1,153			631

Comprehensive Income	$	14,305		$	13,396	$	27,100		$	23,517

All amounts are net of tax.

J & J SNACK FOODS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (in thousands)

	Six months ended
	March 29, 2014			March 30, 2013
Operating activities:
Net earnings	$	25,947		$	22,886
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation of fixed assets		15,591			13,864
Amortization of intangibles and deferred costs		2,511			2,388
Share-based compensation		1,049			916
Deferred income taxes		(189	)		(86	)
Loss on sale of marketable securities		296			-
Other		(126	)		(63	)
Changes in assets and liabilities net of effects from purchase of companies
Decrease(increase)in accounts receivable		636			(2,797	)
Increase in inventories		(5,106	)		(5,090	)
Increase in prepaid expenses		(633	)		(920	)
Decrease in accounts payable and accrued liabilities		(889	)		(2,543	)
Net cash provided by operating activities		39,087			28,555
Investing activities:
Payment for purchases of of companies, net of cash acquired		(11,000	)		-
Purchases of property, plant and equipment		(20,825	)		(15,557	)
Purchases of marketable securities		(25,747	)		(83,342	)
Proceeds from redemption and sales of marketable securities		6,060			23,478
Proceeds from disposal of property and equipment		815			493
Other		(92	)		(36	)
Net cash used in investing activities		(50,789	)		(74,964	)
Financing activities:
Payments to repurchase common stock		-			(2,763	)
Proceeds from issuance of stock		1,023			2,576
Payments on capitalized lease obligations		(204	)		(177	)
Payment of cash dividend		(8,966	)		(5,449	)
Net cash used in financing activities		(8,147	)		(5,813	)
Effect of exchange rate on cash and cash equivalents		(195	)		362
Net decrease in cash and cash equivalents		(20,044	)		(51,860	)
Cash and cash equivalents at beginning of period		97,345			154,198
Cash and cash equivalents at end of period	$	77,301		$	102,338

See accompanying notes to the consolidated financial statements.

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 and six months ended March 29, 2014 and March 30, 2013 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 our 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 28, 2013.

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 $820,000 and $854,000 at March 29, 2014 and September 28, 2013, respectively.

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. Depreciation expense was $7,903,000 and $7,074,000 for the three months ended March 29, 2014 and March 30, 2013, respectively, and for the six months ended March 29, 2014 and March 30, 2013 was $15,591,000 and $13,864,000 respectively.

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 29, 2014
	Income (Numerator)		Shares (Denominator)		Per Share Amount

	(in thousands, except per share amounts)
Basic EPS
Net Earnings available to common stockholders	$	13,521		18,693	$	0.72

Effect of Dilutive Securities
Options		-		126		-

Diluted EPS
Net Earnings available to common stockholders plus assumed conversions	$	13,521		18,819	$	0.72

	Six Months Ended March 29, 2014
	Income (Numerator)		Shares (Denominator)		Per Share Amount

	(in thousands, except per share amounts)
Basic EPS
Net Earnings available to common stockholders	$	25,947		18,686	$	1.39

Effect of Dilutive Securities
Options		-		120		(0.01	)

Diluted EPS
Net Earnings available to common stockholders plus assumed conversions	$	25,947		18,806	$	1.38

	Three Months Ended March 30, 2013
	Income (Numerator)		Shares (Denominator)		Per Share Amount

	(in thousands, except per share amounts)
Basic EPS
Net Earnings available to common stockholders	$	12,660		18,800	$	0.67

Effect of Dilutive Securities
Options		-		86		-

Diluted EPS
Net Earnings available to common stockholders plus assumed conversions	$	12,660		18,886	$	0.67

	Six Months Ended March 30, 2013
	Income (Numerator)		Shares (Denominator)		Per Share Amount

	(in thousands, except per share amounts)
Basic EPS
Net Earnings available to common stockholders	$	22,886		18,803	$	1.22

Effect of Dilutive Securities
Options		-		75		(0.01	)

Diluted EPS
Net Earnings available to common stockholders plus assumed conversions	$	22,886		18,878	$	1.21

Note 5

At March 29, 2014, the Company has three stock-based employee compensation plans. Share-based compensation was recognized as follows:

	Three months ended				Six months ended
	March 29, 2014		March 30, 2013		March 29, 2014		March 30, 2013
	(in thousands, except per share amounts)


Stock Options	$	388	$	215	$	700	$	390
Stock purchase plan		48		45		177		137
Stock issued to outside directors		-		12		-		24
Restricted stock issued to an employee		4		5		8		9
	$	440	$	277	$	885	$	560

Per diluted share	$	0.02	$	0.01	$	0.05	$	0.03

The above compensation is net of tax benefits	$	85	$	132	$	164	$	356

The Company anticipates that share-based compensation will not exceed $1.7 million net of tax benefits, or approximately $.09 per share for the fiscal year ending September 27, 2014.

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 2014 first six months: expected volatility of 20.6%; risk-free interest rate of 1.4%; dividend rate of .8% and expected lives of 5 years.

During the 2014 six month period, the Company granted 98,975 stock options. The weighted-average grant date fair value of these options was $15.21. During the 2013 six month period, the Company granted 1,100 stock options. The weighted-average grant date fair value of these options was $12.24.

Expected volatility is based on the historical volatility of the price of our common shares over the past 55 months for 5 year options and 10 years for 10 year options. We use historical information to estimate expected life and forfeitures within the valuation model. The expected term of awards represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Compensation cost is recognized using a straight-line method over the vesting or service period and is net of estimated forfeitures.

Note 6

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 $420,000 and $438,000 on March 29, 2014 and September 28, 2013, 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 29, 2014 and September 28, 2013, respectively, the Company has $222,000 and $224,000 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.

Note 7

In February 2013, the FASB issued guidance which requires us to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, we are required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts not required under U.S. GAAP to be reclassified in their entirety to net income, we are required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. This guidance was effective for our fiscal year 2014 first quarter and its adoption did not have a material impact on our financial statements.

Note 8

Inventories consist of the following:

	March 29, 2014		September 28, 2013
	(unaudited)
	(in thousands)

Finished goods	$	36,296	$	33,013
Raw Materials		14,530		14,489
Packaging materials		6,428		5,937
Equipment parts & other		19,498		18,346
	$	76,752	$	71,785

The above inventories are net of reserves	$	4,544	$	4,449

Note 9

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. 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, dough enrobed handheld products 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, dough enrobed handheld products 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 primarily under the names ICEE, ARCTIC BLAST,

SLUSH PUPPIE and PARROT ICE 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:

	Three months ended						Six months ended
	March 29, 2014			March 30, 2013			March 29, 2014			March 30, 2013
	(unaudited)
	(in thousands)
Sales to External Customers:
Food Service
Soft pretzels	$	38,815		$	35,337		$	78,123		$	67,931
Frozen juices and ices		11,857			10,122			20,086			17,649
Churros		13,430			14,067			27,381			27,874
Handhelds		5,712			6,938			12,116			13,252
Bakery		66,169			67,084			135,245			135,389
Other		2,346			1,845			4,158			3,485
	$	138,329		$	135,393		$	277,109		$	265,580

Retail Supermarket
Soft pretzels	$	10,309		$	10,046		$	19,224		$	18,624
Frozen juices and ices		8,402			8,998			14,825			15,468
Handhelds		4,815			5,117			10,102			11,430
Coupon redemption		(689	)		(754	)		(1,369	)		(1,543	)
Other		213			146			432			277
	$	23,050		$	23,553		$	43,214		$	44,256

Frozen Beverages
Beverages	$	26,713		$	25,183		$	51,902		$	50,480
Repair and maintenance service		13,135			12,710			26,744			24,552
Machines sales		3,759			3,945			9,282			6,993
Other		335			542			593			873
	$	43,942		$	42,380		$	88,521		$	82,898

Consolidated Sales	$	205,321		$	201,326		$	408,844		$	392,734

Depreciation and Amortization:
Food Service	$	5,233		$	4,717		$	10,372		$	9,226
Retail Supermarket		8			7			16			15
Frozen Beverages		3,921			3,541			7,714			7,011
	$	9,162		$	8,265		$	18,102		$	16,252

Operating Income:
Food Service	$	17,562		$	15,363		$	32,713		$	27,960
Retail Supermarket		2,602			2,404			4,566			3,974
Frozen Beverages		168			1,392			1,024			2,286
	$	20,332		$	19,159		$	38,303		$	34,220

Capital Expenditures:
Food Service	$	4,991		$	4,682		$	10,839		$	9,942
Retail Supermarket		-			-			-			-
Frozen Beverages		6,517			3,394			9,986			5,615
	$	11,508		$	8,076		$	20,825		$	15,557

Assets:
Food Service	$	505,745		$	471,807		$	505,745		$	471,807
Retail Supermarket		6,051			6,082			6,051			6,082
Frozen Beverages		154,198			141,944			154,198			141,944
	$	665,994		$	619,833		$	665,994		$	619,833

Note 10

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 29, 2014 and September 29, 2013 are as follows:

	March 29, 2014				September 28, 2013
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
	(in thousands)

FOOD SERVICE
Indefinite lived intangible assets
Trade Names	$	13,072	$	-	$	12,880	$	-

Amortized intangible assets
Non compete agreements		592		493		545		478
Customer relationships		40,797		28,051		40,187		26,187
License and rights		3,606		2,661		3,606		2,614
	$	58,067	$	31,205	$	57,218	$	29,279

RETAIL SUPERMARKETS

Indefinite lived intangible assets
Trade Names	$	4,006	$	-	$	4,006	$	-

Amortized Intangible Assets
Customer relationships		279		78		279		62
	$	4,285	$	78	$	4,285	$	62


FROZEN BEVERAGES

Indefinite lived intangible assets
Trade Names	$	9,315	$	-	$	9,315	$	-

Amortized intangible assets
Non compete agreements		198		198		198		198
Customer relationships		6,478		5,139		6,478		4,830
Licenses and rights		1,601		749		1,601		714
	$	17,592	$	6,086	$	17,592	$	5,742

CONSOLIDATED	$	79,944	$	37,369	$	79,095	$	35,083

Amortized intangible assets are being amortized by the straight-line method over periods ranging from 3 to 20 years and amortization expense is reflected throughout operating expenses. Intangible assets of $849,000 were acquired in the food service segment in the New York Pretzel acquisition in the three months ended December 28, 2013. Aggregate amortization expense of intangible assets for the three months ended March 29, 2014 and March 30, 2013 was $1,143,000 and $1,113,000, respectively and for the six months ended March 29,2014 and March 30, 2013 was $2,286,000 and $2,232,000, respectively.

Estimated amortization expense for the next five fiscal years is approximately $4,600,000 in 2014, $4,500,000 in 2015 and $4,300,000 in 2016, $1,800,000 in 2017 and $1,000,000 in 2018. 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

Service

Retail

Supermarket

Frozen

Beverages

Total

(in thousands)

Balance at March 29, 2014

46,831

1,844

35,940

84,615

Goodwill of $7,716,000 was acquired in the New York Pretzel acquisition in the three months ended December 28, 2013, all of which was allocated to the food service segment.

Note 11

We have classified our investment securities as marketable securities held to maturity and available for sale. 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 input 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.

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

The amortized cost, unrealized gains and losses, and fair market values of our investment securities held to maturity at March 29, 2014 are summarized as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Market Value
	(in thousands)

US Government Agency Debt	$	2,000		-	$	32	$	1,968
	$	2,000	$	-	$	32	$	1,968

The amortized cost, unrealized gains and losses, and fair market values of our investment securities available for sale at March 29, 2014 are summarized as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Market Value
	(in thousands)

Mutual Funds	$	129,538	$	779	$	1,577	$	128,740

	$	129,538	$	779	$	1,577	$	128,740

The mutual funds seek current income with an emphasis on maintaining low volatility and overall moderate duration. The funds do not have contractual maturities; however, we classify them as long term assets as it is our intent to hold them for a period of over one year, although we may sell some or all of them depending on presently unanticipated needs for liquidity or market conditions. The unrealized losses of $1,577,000 are spread over 22 funds with total fair market value of $82.2 million.

The amortized cost, unrealized gains and losses, and fair market values of our investment securities held to maturity at September 28, 2013 are summarized as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Market Value
	(in thousands)
US Government Agency Debt	$	2,000	$	-	$	50	$	1,950
Certificates of Deposit		256		-		-		256
	$	2,256	$	-	$	50	$	2,206

The amortized cost, unrealized gains and losses, and fair market values of our investment securities available for sale at September 28, 2013 are summarized as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Market Value
	(in thousands)

Mutual Funds	$	109,891	$	254	$	2,481	$	107,664

	$	109,891	$	254	$	2,481	$	107,664

The amortized cost and fair value of the Company’s held to maturity securities by contractual maturity at March 29, 2014 and September 28, 2013 are summarized as follows:

	March 29, 2014				September 28, 2013

	Amortized Cost		Fair Market Value		Amortized Cost		Fair Market Value
	(in thousands)
Due in one year or less	$	-	$	-	$	256	$	256
Due after one year through five years		-		-		-		-
Due after five years through ten years		2,000		1,968		2,000		1,950
Total held to maturity securities	$	2,000	$	1,968	$	2,256	$	2,206
Less current portion		-		-		256		256
Long term held to maturity securities	$	2,000	$	1,968	$	2,000	$	1,950

Proceeds from the redemption and sale of marketable securities were $565,000 and $6,060,000 in the three and six months ended March 29, 2014 respectively, and $23,238,000 and $23,478,000 in the three and six months ended March 30, 2013, respectively. Losses of $36,000 and $296,000 were recorded in the three and six months ended March 29, 2014, respectively, and none were recorded last year. We use the specific identification method to determine the cost of securities sold.

Note 12

In June 2012, we acquired the assets of Kim & Scott’s Gourmet Pretzels, Inc., a manufacturer and seller of a premium brand soft pretzel. This business had sales of approximately $8 million over the prior twelve months to food service and retail supermarket customers and had sales of approximately $1.8 million in our 2012 fiscal year from the acquisition date.

In October 2013, we acquired the assets of New York Pretzel, a manufacturer and distributor of soft pretzels selling primarily in the northeast to foodservice and retail locations. Of the purchase price of $11.8 million, $849,000 was allocated to intangible assets, $7,716,000 was allocated to goodwill and $3,049,000 was allocated to property, plant and equipment.

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 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 13 Changes to the components of accumulated other comprehensive loss are as follows:

	Three Months Ended March 29, 2014									Six Months Ended March 29, 2014
	(unaudited)									(unaudited)
	(in thousands)									(in thousands)

	Foreign Currency Translation Adjustments			Unrealized Holding Loss on Marketable Securities			Total			Foreign Currency Translation Adjustments			Unrealized Holding Loss on Marketable Securities			Total

Beginning Balance	$	(3,807	)	$	(1,754	)	$	(5,561	)	$	(3,703	)	$	(2,227	)	$	(5,930	)

Other comprehensive income (loss) before reclassifications		(172	)		914			742			(276	)		1,126			850

Amounts reclassified from accumulated other comprehensive income		-			42			42			-			303			303

Ending Balance	$	(3,979	)	$	(798	)	$	(4,777	)	$	(3,979	)	$	(798	)	$	(4,777	)

All amounts are net of tax.

	Three Months Ended March 30, 2013								Six Months Ended March 30, 2013
	(unaudited)								(unaudited)
	(in thousands)								(in thousands)

	Foreign Currency Translation Adjustments			Unrealized Holding Loss on Marketable Securities		Total			Foreign Currency Translation Adjustments			Unrealized Holding Loss on Marketable Securities		Total

Beginning Balance	$	(3,255	)	$	18	$	(3,237	)	$	(3,132	)	$	-	$	(3,132	)

Other comprehensive income (loss) before reclassifications		570			166		736			447			184		631

Amounts reclassified from accumulated other comprehensive income		-			-		-			-			-		-

Ending Balance	$	(2,685	)	$	184	$	(2,501	)	$	(2,685	)	$	184	$	(2,501	)

All amounts are net of tax.

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

The Company’s Board of Directors declared a regular quarterly cash dividend of $.32 per share of its common stock payable on April 3, 2014, to shareholders of record as of the close of business on March 14, 2014.

In our fiscal year ended September 28, 2013, we purchased and retired 204,397 shares of our common stock at a cost of $14,500,215. We did not purchase any shares in the six months ended March 29, 2014. On November 8, 2012 the Company’s Board of Directors authorized the purchase and retirement of an additional 500,000 shares of the Company’s common stock; 343,858 shares remain to be purchased under this authorization.

In the three months ended March 29, 2014 and March 30, 2013 fluctuations in the valuation of the Mexican and Canadian currencies and the resulting translation of the net assets of our Mexican and Canadian subsidiaries caused an increase of $172,000 in accumulated other comprehensive loss in the 2014 second quarter and an decrease of $570,000 in accumulated other comprehensive loss in the 2013 second quarter. In the six month period, fluctuations in the valuation of the Mexican and Canadian currencies and the resulting translation of the net assets of our Mexican and Canadian subsidiaries caused an increase of $276,000 in accumulated other comprehensive loss in the 2014 six month period and a decrease of $447,000 in accumulated other comprehensive loss in the 2013 six month period.

Our general-purpose bank credit line which expires in December 2016 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 29, 2014.

Results of Operations

Net sales increased $3,995,000 or 2% to $205,321,000 for the three months and $16,110,000 or 4% to $408,844,000 for the six months ended March 29, 2014 compared to the three and six months ended March 30, 2013.

We believe our sales, and to a lesser extent, our costs, were impacted by the severe weather which occurred in many parts of the country during the current three month period; although we are unable to quantify the impact on our operating income. Most of our product sales are to consumers at snack bar and food stand locations, restaurants and schools so to the extent that traffic was reduced at these locations because of weather, our sales were affected.

FOOD SERVICE

Sales to food service customers increased $2,936,000 or 2% in the second quarter to $138,329,000 and increased $11,529,000 or 4% for the six months. Excluding sales resulting from the acquisition of New York Pretzel in October 2013, food service sales increased approximately 1.5% for the second quarter and increased 4% for the six months. Soft pretzel sales to the food service market increased 10% to $38,815,000 in the second quarter and increased 15% to $78,123,000 in the six months due to increased sales to restaurant chains, warehouse club stores, school food service and throughout our customer base. Increased sales to one customer accounted for approximately 1/2 of the increase in pretzel sales in the quarter and 40% in the six months. Without New York Pretzel, pretzel sales increased about 7% for the second quarter and 13% for the six months. Frozen juices and ices sales increased 17% to $11,857,000 in the three months and 14% to $20,086,000 in the six months resulting from sales increases primarily to warehouse club stores. Churro sales to food service customers decreased 5% to $13,430,000 in the second quarter and were down 2% to $27,381,000 for the six months which was net of a decline in sales of $465,000 in the quarter and $1,229,000 in the six months to one restaurant chain which rolled out a churros product in the year ago period.

Sales of bakery products decreased $915,000 or 1% in the second quarter to $66,169,000 and were essentially unchanged at $135,245,000 for the six months as sales increases and decreases were spread throughout our customer base.

Sales of new products in the first twelve months since their introduction were approximately $2.1 million in this quarter and $4.6 million in the six months. Price increases accounted for approximately $1.3 million of sales in the quarter and $2.2 million in the six months and net volume increases, including new product sales as defined above and sales resulting from the acquisition of New York Pretzel, accounted for approximately $1.6 million of sales in the quarter and $9.3 million in the six months.

Operating income in our Food Service segment increased from $15,363,000 to $17,562,000 in the quarter and increased from $27,960,000 to $32,713,000 in the six months. Operating income for the quarter and six months benefited from increased sales volume, price increases and lower ingredient costs.

RETAIL SUPERMARKETS

Sales of products to retail supermarkets decreased $503,000 or 2% to $23,050,000 in the second quarter and decreased $1,042,000 or 2% to $43,214,000 in the six months. Soft pretzel sales for the second quarter were up 3% to $10,309,000 and were up 3% to $19,224,000 for the six months on a unit volume increase of 2% for the quarter and 2% for the six months. Sales of frozen juices and ices decreased $596,000 or 7% to $8,402,000 in the second quarter and were down 4% to $14,825,000 for the six months on a unit volume decrease of 8% in the quarter and 7% in the six months. Lower sales to one customer accounted for all of the sales decrease in both periods. Coupon redemption costs, a reduction of sales, decreased 9% or about $65,000 for the quarter and decreased 11% to $1,369,000 for the six months. Handheld sales to retail supermarket customers decreased 6% to $4,815,000 in the quarter and decreased 12% to $10,102,000 for the six months with sales increases and decreases throughout our customer base; however, sales to one customer were down over $700,000 for the second quarter and sales to two customers were down about $1.7 million for the six months as products introduced in the year ago period have not been successful.

Price increases accounted for approximately $300,000 of sales in the quarter and $1.0 million in the six months and net volume decreases, net of decreased coupon costs, accounted for approximately $800,000 of the sales decrease in this quarter and $2.0 million in the six months. Operating income in our Retail Supermarkets segment increased from $2,404,000 to $2,602,000 in the quarter and from $3,974,000 to $4,566,000 in the six months primarily because of higher gross margins because of product mix and lower coupon expense.

FROZEN BEVERAGES

Frozen beverage and related product sales increased 4% to $43,942,000 in the second quarter and increased 7% to $88,521,000 in the six month period. Beverage related sales alone were up 6% to $26,713,000 in the second quarter and were up 3% to $51,902,000 in the six month period. Gallon sales were up 5% for the three months and were up 2% for the six month period. Service revenue increased 3% to $13,135,000 in the second quarter and increased 9% to $26,744,000 for the six month period with sales increases and decreases spread throughout our customer base.

Sales of beverage machines, which tend to fluctuate from year to year while following no specific trend, were $186,000 or 5% lower in the second quarter and were $2,289,000 or 33% higher in the six month period. The approximate number of company owned frozen beverage dispensers was 46,500 and 44,700 at March 29, 2014 and September 28, 2013, respectively. Operating income in our Frozen Beverage segment was $168,000 in this quarter and $1,024,000 for the six months compared to $1,392,000 and $2,286,000; respectively, last year as higher operating expenses in these seasonally low periods offset the benefits of increased sales. Group health insurance and liability insurance costs were higher by about $900,000 in the quarter and $800,000 in the six months compared to last year due primarily to an unusually high level of medical claims under our self-insured group health insurance program.

CONSOLIDATED

Gross profit as a percentage of sales increased to 29.76% in the three month period from 28.88% last year and increased to 29.60% in the six month period from 28.59% a year ago. Higher volume in our food service segment was the primary reason for the improved gross profit margin in the six month period while lower ingredients costs benefitted both the three and six month periods.

Total operating expenses increased $1,789,000 in the second quarter and as a percentage of sales increased from 19.37% percent to 19.86%. About 1/3 of the increase in total operating expenses were higher group health insurance costs due primarily to an unusually high level of medical claims under our self-insured group health insurance program. For the first half, operating expenses increased $4,650,000, and as a percentage of sales increased from 19.88% to 20.23%. Operating expenses in the six months this year include $800,000 of other general expenses for shutdown costs of our Norwalk, CA manufacturing facility as well as about $500,000 of higher group health insurance costs. Marketing expenses increased from 8.3% to 8.5% of sales in the quarter and increased from 8.6% to 8.7% of sales in the six months. Distribution expenses were 8.0% of sales in this year’s quarter and were 7.8% of sales in last year’s quarter, and were 7.9% of sales in both years’ six month period. Administrative expenses were 3.3% of sales this quarter and 3.4% for the six month period as compared to 3.2% of sales last year in the second quarter and 3.3% for the six months.

Operating income increased $1,173,000 or 6% to $20,332,000 in the second quarter and increased $4,083,000 or 12% to $38,303,000 in the first half as a result of the aforementioned items.

Investment income increased by $80,000 and $442,000 in the second quarter and six months, respectively, due primarily to increased investments of marketable securities. We have investments of $128.7 million in mutual funds that seek current income with an emphasis on maintaining low volatility and overall moderate duration. We estimate the annual yield from these funds to approximate 3.5 – 3.75%.

The effective income tax rate has been estimated at 36.5% and 36.8% for the quarter this year and last year, respectively and 35.7% and 36.1% for the six months this year and last year, respectively. We are estimating an effective income tax rate of approximately 36% for the year.

Net earnings increased $861,000 or 7% in the current three month period to $13,521,000 and increased 13% to $25,947,000 for the six months this year from $22,886,000 as a result of the aforementioned items.

There are many factors which can impact our net earnings from year to year and in the long run, among which are the supply and cost of raw materials and labor, insurance costs, factors impacting sales as noted above, the continuing consolidation of our customers, our ability to manage our manufacturing, marketing and distribution activities, our ability to make and integrate acquisitions and changes in tax laws and interest rates.

Item 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 2013 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 29, 2014, 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 has been no change in the Company’s internal control over financial reporting during the quarter ended March 29, 2014, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 6.

Exhibits

Exhibit No.

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

101.1

The following financial information from J&J Snack Foods Corp.'s Quarterly Report on Form 10-Q for the quarter ended March 29, 2014, formatted in XBRL (extensible Business Reporting Language):

(i)

Consolidated Balance Sheets,

(ii)

Consolidated Statements of Earnings,

(iii)

Consolidated Statements of Comprehensive Income,

(iv)

Consolidated Statements of Cash Flows and

(v)

the Notes to the Consolidated Financial Statements

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 28, 2014	/s/ Gerald B. Shreiber
	Gerald B. Shreiber
	Chairman of the Board,
	President, Chief Executive
	Officer and Director
	(Principal Executive Officer)



Dated: April 28, 2014	/s/ Dennis G. Moore
	Dennis G. Moore, Senior Vice
	President, Chief Financial
	Officer and Director
	(Principal Financial Officer)
	(Principal Accounting Officer)