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UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the period ended December 27, 2014

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).

 X        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 (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 of January 21, 2015, there were 18,688,487 shares of the Registrant’s Common Stock outstanding.

 

 
1

 

 

INDEX

 

 

 

 

Page

Number

 

 

 

Part I.     Financial Information

 

 

 

 

 

Item l.     Consolidated Financial Statements

 

 

 

 

 

Consolidated Balance Sheets – December 27, 2014 (unaudited) and September 27, 2014

 3

 

 

 

 

Consolidated Statements of Earnings (unaudited) – Three Months Ended December 27, 2014 and December 28, 2013

 4

 

 

 

 

Consolidated Statements of Comprehensive Income (unaudited) – Three Months Ended December 27, 2014 and December 28, 2013

 5

 

 

 

 

Consolidated Statements of Cash Flows (unaudited) – Three Months Ended December 27, 2014 and December 28, 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

 23

 

 

 
2

 

 

J & J SNACK FOODS CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

 

   

December 27,

   

September 27,

 
   

2014

   

2014

 
   

(unaudited)

         

Assets

               

Current assets

               

Cash and cash equivalents

  $ 98,075     $ 91,760  

Accounts receivable, net

    83,777       99,972  

Inventories, net

    85,531       76,083  

Prepaid expenses and other

    3,790       3,695  

Deferred income taxes

    4,163       4,096  

Total current assets

    275,336       275,606  
                 

Property, plant and equipment, at cost

               

Land

    2,496       2,496  

Buildings

    26,741       26,741  

Plant machinery and equipment

    196,771       195,566  

Marketing equipment

    260,009       256,389  

Transportation equipment

    6,809       6,913  

Office equipment

    19,299       18,556  

Improvements

    26,701       26,635  

Construction in progress

    8,242       4,785  

Total Property, plant and equipment, at cost

    547,068       538,081  

Less accumulated depreciation and amortization

    387,177       380,552  

Property, plant and equipment, net

    159,891       157,529  
                 

Other assets

               

Goodwill

    86,442       86,442  

Other intangible assets, net

    49,634       50,989  

Marketable securities held to maturity

    2,000       2,000  

Marketable securities available for sale

    125,723       128,117  

Other

    3,838       4,090  

Total other assets

    267,637       271,638  

Total Assets

  $ 702,864     $ 704,773  
                 

Liabilities and Stockholder's Equity

               

Current Liabilities

               

Current obligations under capital leases

  $ 133     $ 146  

Accounts payable

    54,881       59,968  

Accrued insurance liability

    10,817       10,578  

Accrued income taxes

    5,486       -  

Accrued liabilities

    5,190       5,007  

Accrued compensation expense

    10,251       14,286  

Dividends payable

    6,724       5,972  

Total current liabilities

    93,482       95,957  
                 

Long-term obligations under capital leases

    348       374  

Deferred income taxes

    44,626       44,785  

Other long-term liabilities

    1,091       1,139  
                 

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 18,678,000 and 18,663,000 respectively

    32,765       32,621  

Accumulated other comprehensive loss

    (9,865 )     (5,988 )

Retained Earnings

    540,417       535,885  

Total stockholders' equity

    563,317       562,518  

Total Liabilities and Stockholder's Equity

  $ 702,864     $ 704,773  

 

The accompanying notes are an integral part of these statements.

 

 
3

 

 

J & J SNACK FOODS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

(in thousands, except per share amounts)

 

   

Three months ended

 
   

December 27,

   

December 28,

 
   

2014

   

2013

 
                 

Net Sales

  $ 212,752     $ 203,523  
                 

Cost of goods sold(1)

    151,651       143,617  

Gross Profit

    61,101       59,906  
                 

Operating expenses

               

Marketing (2)

    19,487       18,032  

Distribution (3)

    17,521       16,120  

Administrative (4)

    7,525       6,984  

Other general(income)expense

    (42 )     799  

Total Operating Expenses

    44,491       41,935  
                 

Operating Income

    16,610       17,971  
                 

Other income (expense)

               

Investment income

    1,354       1,138  

Interest expense & other

    (24 )     (36 )
                 

Earnings before income taxes

    17,940       19,073  
                 

Income taxes

    6,684       6,647  
                 

NET EARNINGS

  $ 11,256     $ 12,426  
                 

Earnings per diluted share

  $ 0.60     $ 0.66  
                 

Weighted average number of diluted shares

    18,801       18,793  
                 

Earnings per basic share

  $ 0.60     $ 0.67  
                 

Weighted average number of basic shares

    18,669       18,679  

 

(1)

Includes share-based compensation expense of $112 and $118 for the three months ended December 27, 2014 and December 28, 2013, respectively.

(2)

Includes share-based compensation expense of $172 and $170 for the three months ended December 27, 2014 and December 28, 2013, respectively.

(3)

Includes share-based compensation expense of $11 and $10 for the three months ended December 27, 2014 and December 28, 2013, respectively.

(4)

Includes share-based compensation expense of $229 and $226 for the three months ended December 27, 2014 and December 28, 2013, respectively.

    

See accompanying notes to the consolidated financial statements

 

 
4

 

J&J SNACK FOODS CORP. AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(in thousands)

 

   

Three months ended

 
   

December 27,

   

December 28,

 
   

2014

   

2013

 
                 

Net Earnings

  $ 11,256     $ 12,426  
                 

Foreign currency translation adjustments

    (1,955 )     (104 )

Unrealized holding(loss)gain on marketable securities

    (1,922 )     212  
                 

Total Other Comprehensive(Loss)Income, net of tax

    (3,877 )     108  
                 

Comprehensive Income

  $ 7,379     $ 12,534  

 

All amounts are net of tax.

 

 
5

 

 

J & J SNACK FOODS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)             (in thousands)  

 

   

Three months ended

 
   

December 27,

   

December 28,

 
   

2014

   

2013

 

Operating activities:

               

Net earnings

  $ 11,256     $ 12,426  

Adjustments to reconcile net earnings to net cash provided by operating activities:

               

Depreciation of fixed assets

    7,981       7,688  

Amortization of intangibles and deferred costs

    1,434       1,252  

Share-based compensation

    526       524  

Deferred income taxes

    (208 )     (59 )

Loss on sale of marketable securities

    509       260  

Other

    (58 )     (93 )

Changes in assets and liabilities net of effects from purchase of companies

               
Decrease in accounts receivable     16,023       12,906  

Increase in inventories

    (9,341 )     (5,140 )

Increase in prepaid expenses

    (115 )     (358 )

(Decrease)increase in accounts payable and accrued liabilities

    (2,895 )     1,872  

Net cash provided by operating activities

    25,112       31,278  

Investing activities:

               

Payment for purchases of of companies, net of cash acquired

    -       (11,000 )

Purchases of property, plant and equipment

    (10,855 )     (9,317 )

Purchases of marketable securities

    (11,639 )     (5,240 )

Proceeds from redemption and sales of marketable securities

    11,601       5,495  

Proceeds from disposal of property and equipment

    197       360  

Other

    (47 )     (109 )

Net cash used in investing activities

    (10,743 )     (19,811 )

Financing activities:

               

Payments to repurchase common stock

    (1,670 )     -  

Proceeds from issuance of stock

    1,098       120  

Payments on capitalized lease obligations

    (39 )     (124 )

Payment of cash dividend

    (5,972 )     (2,988 )

Net cash used in financing activities

    (6,583 )     (2,992 )

Effect of exchange rate on cash and cash equivalents

    (1,471 )     (71 )

Net increase in cash and cash equivalents

    6,315       8,404  

Cash and cash equivalents at beginning of period

    91,760       97,345  

Cash and cash equivalents at end of period

  $ 98,075     $ 105,749  

 

See accompanying notes to the consolidated financial statements.

 

 
6

 

  

J & J SNACK FOODS CORP. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Note 1

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position and the results of operations and cash flows. Certain prior year amounts have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported net earnings.

 

The results of operations for the three months ended December 27, 2014 and December 28, 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 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 27, 2014.

 

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 $464,000 and $450,000 at December 27, 2014 and September 27, 2014, 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 $7,981,000 and $7,688,000 for the three months ended December 27, 2014 and December 28, 2013, respectively.

 

 
7

 

  

Note 4

Basic earnings per common share (EPS) excludes dilution and is computed by dividing income available to common shareholders by the weighted average common shares outstanding during the period. Diluted EPS takes into consideration the potential dilution that could occur if securities (stock options) or other contracts to issue common stock were exercised and converted into common stock. Our calculation of EPS is as follows:

 

   

Three Months Ended December 27, 2014

 
   

Income

   

Shares

   

Per Share

 
   

(Numerator)

   

(Denominator)

   

Amount

 
                         
   

(in thousands, except per share amounts)

 

Basic EPS

                       

Net Earnings available to common stockholders

  $ 11,256       18,669     $ 0.60  
                         

Effect of Dilutive Securities

                       

Options

    -       132       -  
                         

Diluted EPS

                       

Net Earnings available to common stockholders plus assumed conversions

  $ 11,256       18,801     $ 0.60  

 

 

   

Three Months Ended December 28, 2013

 
   

Income

   

Shares

   

Per Share

 
   

(Numerator)

   

(Denominator)

   

Amount

 
                         
   

(in thousands, except per share amounts)

 

Basic EPS

                       

Net Earnings available to common stockholders

  $ 12,426       18,679     $ 0.67  
                         

Effect of Dilutive Securities

                       

Options

    -       114       (0.01 )
                         

Diluted EPS

                       

Net Earnings available to common stockholders plus assumed conversions

  $ 12,426       18,793     $ 0.66  

 

 
8

 

 

Note 5

At December 27, 2014, the Company has three stock-based employee compensation plans. Share-based compensation was recognized as follows:

 

   

Three months ended

 
   

December 27,

   

December 28,

 
   

2014

   

2013

 
   

(in thousands, except per share amounts)

 
                 
                 

Stock Options

  $ 284     $ 312  

Stock purchase plan

    147       129  

Restricted stock issued to an employee

    1       4  

Total share-based compensation

  $ 432     $ 445  
                 

Per diluted share

  $ 0.02     $ 0.02  
                 

The above compensation is net of tax benefits

  $ 92     $ 79  

 

 

 

The Company anticipates that share-based compensation will not exceed $2.1 million net of tax benefits, or approximately $.11 per share for the fiscal year ending September 26, 2015.

 

The Company did not grant any stock options during the 2015 three month period. During the 2014 three month period, the Company granted 97,975 stock options. The weighted-average grant date fair value of these options was $15.21.

 

Expected volatility is based on the historical volatility of the price of our common shares over the past 49 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.

 

 
9

 

 

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 $315,000 and $315,000 on December 27, 2014 and September 27, 2014, respectively, all of which would impact our effective tax rate over time, if recognized. We recognize interest and penalties related to income tax matters as a part of the provision for income taxes. As of December 27, 2014 and September 27, 2014, respectively, the Company has $180,000 and $180,000 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 May 2014, the FASB issued guidance on revenue recognition which says that we should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration which we expect to be entitled in exchange for those goods or services.  This guidance is effective for our fiscal year ending September 2018.  Early application is not permitted.  We will assess the impact this guidance will have on our consolidated financial statements.

 

Note 8 Inventories consist of the following:

 

   

December 27,

   

September 27,

 
   

2014

   

2014

 
   

(unaudited)

         
   

(in thousands)

 
                 

Finished goods

  $ 38,259     $ 33,189  

Raw materials

    17,979       15,632  

Packaging materials

    6,962       6,107  

Equipment parts and other

    22,331       21,155  

Total Inventories

  $ 85,531     $ 76,083  
                 

The above inventories are net of reserves

  $ 1,838     $ 3,982  

 

Approximately $2.2 million of inventory at September 27, 2014 has been written off in the December quarter.

 

 
10

 

 

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.

 

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 to the retail supermarket channel 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 and sorbet, PHILLY SWIRL cups and sticks, ICEE Squeeze-Up Tubes and dough enrobed handheld products including PATIO burritos. 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, 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:

 

 
11

 

 

   

Three months ended

 
   

December 27,

   

December 28,

 
   

2014

   

2013

 
   

(unaudited)

 
    (in thousands)  

Sales to External Customers:

               

Food Service

               

Soft pretzels

  $ 40,718     $ 39,308  

Frozen juices and ices

    8,201       8,229  

Churros

    12,967       13,951  

Handhelds

    5,158       6,404  

Bakery

    74,431       69,076  

Other

    2,086       1,812  

Total Food Service

  $ 143,561     $ 138,780  
                 

Retail Supermarket

               

Soft pretzels

  $ 9,200     $ 8,915  

Frozen juices and ices

    9,155       6,423  

Handhelds

    4,879       5,287  

Coupon redemption

    (1,073 )     (680 )

Other

    226       219  

Total Retail Supermarket

  $ 22,387     $ 20,164  
                 

Frozen Beverages

               

Beverages

  $ 25,510     $ 25,189  

Repair and maintenance service

    15,310       13,609  

Machines sales

    5,747       5,523  

Other

    237       258  

Total Frozen Beverages

  $ 46,804     $ 44,579  
                 

Consolidated Sales

  $ 212,752     $ 203,523  
                 

Depreciation and Amortization:

               

Food Service

  $ 5,253     $ 5,139  

Retail Supermarket

    253       8  

Frozen Beverages

    3,909       3,793  

Total Depreciation and Amortization

  $ 9,415     $ 8,940  
                 

Operating Income :

               

Food Service

  $ 15,493     $ 15,151  

Retail Supermarket

    666       1,964  

Frozen Beverages

    451       856  

Total Operating Income

  $ 16,610     $ 17,971  
                 

Capital Expenditures:

               

Food Service

  $ 6,156     $ 5,848  

Retail Supermarket

    -       -  

Frozen Beverages

    4,699       3,469  

Total Capital Expenditures

  $ 10,855     $ 9,317  
                 

Assets:

               

Food Service

  $ 529,640     $ 502,756  

Retail Supermarket

    14,672       6,059  

Frozen Beverages

    158,552       150,322  

Total Assets

  $ 702,864     $ 659,137  

 

 
12

 

 

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 December 27, 2014 and September 27, 2014 are as follows:

 

   

December 27, 2014

   

September 27, 2014

 
   

Gross

           

Gross

         
   

Carrying

   

Accumulated

   

Carrying

   

Accumulated

 
   

Amount

   

Amortization

   

Amount

   

Amortization

 
   

(in thousands)

 
                                 

FOOD SERVICE

                               
                                 

Indefinite lived intangible assets

                               

Trade Names

  $ 13,072     $ -     $ 13,072     $ -  
                                 

Amortized intangible assets

                               

Non compete agreements

    592       517       592       509  

Customer relationships

    40,797       30,846       40,797       29,914  

License and rights

    3,606       2,732       3,606       2,708  

TOTAL FOOD SERVICE

  $ 58,067     $ 34,095     $ 58,067     $ 33,131  
                                 

RETAIL SUPERMARKETS

                               
                                 

Indefinite lived intangible assets

                               

Trade Names

  $ 7,206     $ -     $ 7,206     $ -  
                                 

Amortized Intangible Assets

                               

Non compete agreements

    160       54       160       34  

Customer relationships

    7,979       619       7,979       420  

TOTAL RETAIL SUPERMARKETS

  $ 15,345     $ 673     $ 15,345     $ 454  
                                 
                                 

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       5,602       6,478       5,448  

Licenses and rights

    1,601       802       1,601       784  

TOTAL FROZEN BEVERAGES

  $ 17,592     $ 6,602     $ 17,592     $ 6,430  
                                 

CONSOLIDATED

  $ 91,004     $ 41,370     $ 91,004     $ 40,015  

 

 
13

 

 

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 intangible assets acquired in the three months ended December 27, 2014. Aggregate amortization expense of intangible assets for the three months ended December 27, 2014 and December 28, 2013 was $1,355,000 and $1,143,000, respectively.

 

Estimated amortization expense for the next five fiscal years is approximately $5,400,000 in 2015 and $5,100,000 in 2016, $2,600,000 in 2017, $1,800,000 in 2018 and $1,600,000 in 2019. 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 December 27, 2014

  $ 46,832     $ 3,670     $ 35,940     $ 86,442  
                                 

Balance at September 27, 2014

  $ 46,832     $ 3,670     $ 35,940     $ 86,442  

                                                                                                         

 

There was no goodwill acquired in the three months ended December 27, 2014.  

 

 

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

 

 
14

 

 

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 consist primarily of investments in mutual funds and preferred stock.  The fair values of mutual funds are based on quoted market prices in active markets and are classified within Level 1 of the fair value hierarchy.  The fair value of preferred stock is based on quoted prices for identical or similar instruments in markets that are not active.  As a result, preferred stock is classified within Level 2 of the fair value hierarchy. 

 

The amortized cost, unrealized gains and losses, and fair market values of our investment securities held to maturity at December 27, 2014 are summarized as follows:

 

           

Gross

   

Gross

   

Fair

 
   

Amortized

   

Unrealized

   

Unrealized

   

Market

 
   

Cost

   

Gains

   

Losses

   

Value

 
   

(in thousands)

 
                                 

US Government Agency Debt

  $ 2,000     $ 2     $ 0     $ 2,002  
    $ 2,000     $ 2     $ 0     $ 2,002  

 

 

 

The amortized cost, unrealized gains and losses, and fair market values of our investment securities available for sale at December 27, 2014 are summarized as follows:

 

           

Gross

   

Gross

   

Fair

 
   

Amortized

   

Unrealized

   

Unrealized

   

Market

 
   

Cost

   

Gains

   

Losses

   

Value

 
   

(in thousands)

 
                                 

Mutual Funds

  $ 117,376     $ 318     $ 3,699     $ 113,995  

Preferred Stock

  $ 11,625     $ 108     $ 5     $ 11,728  
                                 
    $ 129,001     $ 426     $ 3,704     $ 125,723  

 

The mutual funds seek current income with an emphasis on maintaining low volatility and overall moderate duration. The unrealized losses of $3.7 million are spread over 28 funds with total fair market value of $94.3 million. The Fixed-to-Floating Perpetual Preferred Stock generate fixed income to call dates in 2018 and 2019 and then income is based on a spread above LIBOR if the securities are not called. These investment securities 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.   

 

 
15

 

 

The amortized cost, unrealized gains and losses, and fair market values of our investment securities held to maturity at September 27, 2014 are summarized as follows:

 

           

Gross

   

Gross

   

Fair

 
   

Amortized

   

Unrealized

   

Unrealized

   

Market

 
   

Cost

   

Gains

   

Losses

   

Value

 
    (in thousands)  

US Government Agency Debt

  $ 2,000     $ -     $ 13     $ 1,987  
                                 

Total investment securities held to maturity

  $ 2,000     $ -     $ 13     $ 1,987  

 

 

 

 

The amortized cost, unrealized gains and losses, and fair market values of our investment securities available for sale at September 27, 2014 are summarized as follows:

 

           

Gross

   

Gross

   

Fair

 
   

Amortized

   

Unrealized

   

Unrealized

   

Market

 
   

Cost

   

Gains

   

Losses

   

Value

 
   

(in thousands)

 
                                 

Mutual Funds

  $ 129,473     $ 760     $ 2,116     $ 128,117  
                                 

Total investment securities available for sale

  $ 129,473     $ 760     $ 2,116     $ 128,117  

 

 
16

 

 

The amortized cost and fair value of the Company’s held to maturity securities by contractual maturity at December 27, 2014 and September 27, 2014 are summarized as follows:

 

   

December 27, 2014

   

September 27, 2014

 
                                 
           

Fair

           

Fair

 
   

Amortized

   

Market

   

Amortized

   

Market

 
   

Cost

   

Value

   

Cost

   

Value

 
   

(in thousands)

 

Due in one year or less

  $ -     $ -     $ -     $ -  

Due after one year through five years

    -       -       -       -  

Due after five years through ten years

    2,000       2,002       2,000       1,987  

Total held to maturity securities

  $ 2,000     $ 2,002     $ 2,000     $ 1,987  

Less current portion

    -       -       -       -  

Long term held to maturity securities

  $ 2,000     $ 2,002     $ 2,000     $ 1,987  

 

 

Proceeds from the redemption and sale of marketable securities were $11,601,000 and $5,495,000 in the three months ended December 27, 2014 and December 28, 2013, respectively, with a loss of $509,000 recorded in the three months ended December 27, 2014 and $260,000 recorded in the three months ended December 28, 2013. We use the specific identification method to determine the cost of securities sold.

 

 

Note 12

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. The business had sales of about $4.3 million in our 2014 fiscal year included in the food service segment. 

 

In May 2014, we acquired the stock of Philly’s Famous Water Ice, Inc. (PHILLY SWIRL). PHILLY SWIRL, located in Tampa, FL, produces frozen novelty products sold primarily to retail supermarket locations throughout the United States and to Canada with annual sales approximating $25 million.  The allocation of the purchase price of $17.4 million is $4.0 million to working capital, $1.2 million to property, plant and equipment, $11.1 million to intangible assets, $1.8 million to goodwill, $4.0 million to deferred tax assets, $95,000 to other assets and $4.8 million to deferred tax liabilities. Sales of PHILLY SWIRL from the acquisition date to September 27, 2014 were $12.6 million and are included in the retail supermarket segment.    

   

 
17

 

 

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 inputs).

  

 

Note 13

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

 

    Three Months ended December 27, 2014          
    (unaudited)          
    (in thousands)          
                         
           

Unrealized Holding

         
   

Foreign Currency

   

Loss on

         
   

Translation Adjustments

   

Marketable Securities

   

Total

 
                         

Beginning Balance

  $ (4,632 )   $ (1,356 )   $ (5,988 )
                         

Other comprehensive loss before reclassifications

    (1,955 )     (2,138 )     (4,093 )
                         

Amounts reclassified from accumulated other comprehensive income

    -       216       216  
                         

Ending Balance

  $ (6,587 )   $ (3,278 )   $ (9,865 )

 

 

All amounts are net of tax.

 

 
18

 

 

    Three Months ended December 28, 2013          
    (unaudited)          
    (in thousands)          
                         
           

Unrealized Holding

         
   

Foreign Currency

   

Loss on

         
   

Translation Adjustments

   

Marketable Securities

   

Total

 
                         

Beginning Balance

  $ (3,703 )   $ (2,227 )   $ (5,930 )
                         

Other comprehensive(loss)income before reclassifications

    (104 )     212       108  
                         

Amounts reclassified from accumulated other comprehensive income

    -       261       261  
                         

Ending Balance

  $ (3,807 )   $ (1,754 )   $ (5,561 )

 

 

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 $.36 per share of its common stock payable on January 8, 2015, to shareholders of record as of the close of business on December 23, 2014.

 

In our fiscal year ended September 27, 2014, we purchased and retired 81,685 shares of our common stock at a cost of $7,504,729. In the quarter ended December 27, 2014, we purchased and retired 16,164 shares of our common stock at a cost of $1,669,741. On November 8, 2012 the Company’s Board of Directors authorized the purchase and retirement of 500,000 shares of the Company’s common stock; 246,009 shares remain to be purchased under this authorization.

 

 
19

 

 

In the three months ended December 27, 2014 and December 28, 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 $1,955,000 in accumulated other comprehensive loss in the 2015 first quarter and an increase of $104,000 in accumulated other comprehensive loss in the 2014 first quarter.

 

 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 December 27, 2014. 

 

 

Results of Operations

 

Net sales increased $9,229,000 or 5% to $212,752,000 for the three months ended December 27, 2014 compared to the three months ended December 28, 2013. Excluding sales of PHILLY SWIRL, which was acquired in the third quarter of fiscal year 2014, sales increased $6,865,000 or a little less than 3 1/2%.

 

 

 

FOOD SERVICE

 

Sales to food service customers increased $4,781,000 or 3% in the first quarter to $143,561,000. Soft pretzel sales to the food service market increased 4% to $40,718,000 in the first quarter due to increased sales to school food service and throughout our customer base; however, soft pretzel sales to restaurant chains this quarter were approximately the same as a year ago. Increased sales to one customer accounted for approximately 1/2 of the increase in pretzel sales in the quarter. Frozen juices and ices sales for the quarter were essentially unchanged at $8,201,000 with increased sales to school food service offset by decreased sales throughout our customer base. Churro sales to food service customers decreased 7% to $12,967,000 in the first quarter which was net of a decline in sales of $2,098,000 to one restaurant chain which discontinued carrying the product in August 2014. Churro sales to other customers increased 9% in the quarter with increases throughout our customer base.

 

Sales of bakery products increased $5,355,000 or 8% in the first quarter to $74,431,000 as sales increases to two customers and school food service accounted for all of the sales increase.

 

Sales of new products in the first twelve months since their introduction were approximately $3.8 million in this quarter. Price increases accounted for approximately $2.8 million of sales in the quarter and net volume increases, including new product sales as defined above, accounted for approximately $2.0 million of sales in the quarter.

 

Operating income in our Food Service segment increased from $15,151,000 to $15,493,000 in the quarter because last year’s quarter included $800,000 of other general expenses for shutdown costs of our Norwalk, CA manufacturing facility. Operating income for the quarter was impacted by low volume growth and higher manufacturing expenses.

  

 
20

 

 

RETAIL SUPERMARKETS

 

Sales of products to retail supermarkets increased $2,223,000 or 11% to $22,387,000 in the first quarter. Excluding sales of PHILLY SWIRL, sales were down less than 1%. Soft pretzel sales for the first quarter were up 3% to $9,200,000 due to sales of the newly introduced SUPERPRETZEL BAVARIAN Soft Pretzel Bread. Sales of frozen juices and ices increased $2,732,000 or 43% to $9,155,000 in the first quarter. Without PHILLY SWIRL, sales increased 6%. Coupon redemption costs, a reduction of sales, increased 58% or about $393,000 for the quarter. Handheld sales to retail supermarket customers decreased 8% to $4,879,000 in the quarter with a sales decrease to one customer accounting for over 85% of the decrease.

 

Sales of new products in the first twelve months since their introduction were approximately $430,000 in the quarter. Price increases accounted for approximately $200,000 of sales in the quarter and net volume increases, including new product sales as defined above and PHILLY SWIRL sales and net of increased coupon costs, accounted for approximately $2.0 million of the sales increase in this quarter. Operating income in our Retail Supermarkets segment decreased from $1,964,000 to $666,000 in the quarter primarily because of higher coupon expense, advertising expenses to introduce our SUPERPRETZEL BAVARIAN Soft Pretzel Bread and an operating loss of $951,000 by PHILLY SWIRL due to seasonality.

 

 

 

FROZEN BEVERAGES

 

Frozen beverage and related product sales increased 5% to $46,804,000 in the first quarter. Beverage related sales alone were up 1% in the quarter.   Gallon sales were up 2% for the quarter. Service revenue increased 12% to $15,310,000 in the first quarter with increased sales to two customers accounting for all of the sales increase.

 

Sales of beverage machines, which tend to fluctuate from year to year while following no specific trend, were $5,747,000 or 4% higher in the three month period. The approximate number of company owned frozen beverage dispensers was 49,300 and 49,100 at December 27, 2014 and September 27, 2014, respectively. Operating income in our Frozen Beverage segment was $451,000 in this year’s quarter compared to $856,000 last year as higher operating expenses in this seasonally low period offset the benefits of increased sales.

 

CONSOLIDATED

 

Gross profit as a percentage of sales decreased to 28.72% in the three month period from 29.43% last year. PHILLY SWIRL accounted for approximately 1/3 of the percentage decrease with the balance resulting from higher manufacturing expenses and relatively low volume increases in our food service segment.

 

 
21

 

 

Total operating expenses increased $2,556,000 in this quarter and as a percentage of sales increased from 20.6% percent to 20.9%. Last year’s operating expenses included $800,000 of other general expenses for shutdown costs of our Norwalk, CA manufacturing facility. Without this $800,000, total operating expenses last year were 20.2% of sales.  About 43% of the increase in percent of sales from 20.2% to 20.9% was due to the expenses of PHILLY SWIRL in this seasonally low quarter, about 23% was related to increased advertising spending for the introduction of SUPERPRETZEL BAVARIAN Soft Pretzel Bread in our retail supermarket segment and the balance was primarily higher expenses in our frozen beverage segment in its seasonally low quarter.  For these reasons, marketing expenses increased to 9.16% of sales from 8.86%, distribution expenses increased to 8.24% of sales from 7.92% and administrative expenses increased to 3.54% of sales from 3.43%.      

 

Operating income decreased $1,361,000 or 8% to $16,610,000 in the first quarter as a result of the aforementioned items.      

 

Investment income increased by $216,000 in the quarter due primarily to increased investments of marketable securities. We have invested $114 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%. The mutual funds have unrealized losses of $3.7 million which may eventually be realized.

 

We invested $11.6 million during the quarter in Fixed-to-Floating Perpetual Preferred Stock which generates fixed income to call dates in 2018 and 2019 and then income is based on a spread above LIBOR if the securities are not called.  We estimate the annual yield from these investments to approximate 5.0%. The mutual funds and the Fixed-to-Floating Perpetual Preferred Stock investment securities 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 effective income tax rate has been estimated at 37% for this year’s quarter and 35% for last year’s quarter. We are estimating an effective income tax rate of approximately 36 1/2% for the year.  Last year’s first quarter benefitted from a reduction of tax expense because of changes in estimates related to a prior year while this year’s quarter was impacted by a low tax benefit on share based compensation.

 

Net earnings decreased $1,170,000 or 9% in the current three month period to $11,256,000 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.

 

 
22

 

  

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 2014 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 December 27, 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 December 27, 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   &   Certification Pursuant to Section 302 of
  31.2          the Sarbanes-Oxley Act of 2002
   
   
  99.5   &   Certification Pursuant to the 18 U.S.C.
  99.6         Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 
23

 

 

101.1   The following financial information from J&J Snack Foods Corp.'s Quarterly Report on Form 10-Q for the quarter ended December 27, 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: January 26, 2015

/s/ Gerald B. Shreiber

 

Gerald B. Shreiber

 

Chairman of the Board,

 

President, Chief Executive

 

Officer and Director

 

(Principal Executive Officer)

 

 

 

 

 

 

Dated: January 26, 2015

/s/ Dennis G. Moore

 

Dennis G. Moore, Senior Vice

 

President, Chief Financial

 

Officer and Director

 

(Principal Financial Officer)

 

(Principal Accounting Officer)

 

 

24