jjs.htm

UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the period ended December 26, 2015

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 incorporation or organization)

(I.R.S. Employer 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 20, 2016, there were 18,686,216 shares of the Registrant’s Common Stock outstanding.

 

 

 

 

INDEX

 

 

    Page
   

 

Number
       

Part I.

Financial Information  
       

 

Item l. Consolidated Financial Statements  
       

 

  Consolidated Balance Sheets – December 26, 2015 (unaudited) and September 26, 2015 3
       

 

  Consolidated Statements of Earnings (unaudited) - Three Months Ended December 26, 2015 and December 27, 2014 4
       

 

  Consolidated Statements of Comprehensive Income (unaudited)– Three Months Ended December 26, 2015 and December 27, 2014 5
 

 

   

 

  Consolidated Statements of Cash Flows (unaudited) – Three Months Ended December 26, 2015 and December 27, 2014 6

 

   

 

  Notes to the Consolidated Financial Statements (unaudited)

7

       

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21
   

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

24
   

 

 

 

Item 4.

Controls and Procedures

24

       

Part II.

Other Information    
       

 

Item 6.

Exhibits

25

 

 

 
2

 

   

J & J SNACK FOODS CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

 

   

December 26,

   

September 26,

 
   

2015

   

2015

 
   

(unaudited)

         

Assets

               

Current assets

               

Cash and cash equivalents

  $ 111,922     $ 133,689  

Accounts receivable, net

    92,180       102,649  

Inventories

    94,503       82,657  

Prepaid expenses and other

    3,409       6,557  

Deferred income taxes

    3,239       3,266  

Total current assets

    305,253       328,818  
                 

Property, plant and equipment, at cost

               

Land

    2,496       2,496  

Buildings

    26,741       26,741  

Plant machinery and equipment

    217,229       210,728  

Marketing equipment

    269,455       266,047  

Transportation equipment

    6,878       6,866  

Office equipment

    20,898       20,586  

Improvements

    33,637       28,725  

Construction in progress

    5,764       9,486  

Total Property, plant and equipment, at cost

    583,098       571,675  

Less accumulated depreciation and amortization

    406,452       399,621  

Property, plant and equipment, net

    176,646       172,054  
                 

Other assets

               

Goodwill

    86,442       86,442  

Other intangible assets, net

    44,490       45,819  

Marketable securities held to maturity

    87,772       66,660  

Marketable securities available for sale

    37,508       39,638  

Other

    3,527       3,504  

Total other assets

    259,739       242,063  

Total Assets

  $ 741,638     $ 742,935  
                 

Liabilities and Stockholder's Equity

               

Current Liabilities

               

Current obligations under capital leases

  $ 276     $ 273  

Accounts payable

    56,875       59,206  

Accrued insurance liability

    10,487       10,231  

Accrued income taxes

    3,465       -  

Accrued liabilities

    4,916       5,365  

Accrued compensation expense

    10,908       15,318  

Dividends payable

    7,284       6,723  

Total current liabilities

    94,211       97,116  
                 

Long-term obligations under capital leases

    1,126       1,196  

Deferred income taxes

    43,719       43,789  

Other long-term liabilities

    888       915  
                 

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 18,677,000 and 18,676,000 respectively

    29,695       31,653  

Accumulated other comprehensive loss

    (12,359 )     (10,897 )

Retained Earnings

    584,358       579,163  

Total stockholders' equity

    601,694       599,919  

Total Liabilities and Stockholder's Equity

  $ 741,638     $ 742,935  

 

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 26,

   

December 27,

 
   

2015

   

2014

 
                 

Net Sales

  $ 222,850     $ 212,752  
                 

Cost of goods sold(1)

    159,015       151,651  

Gross Profit

    63,835       61,101  
                 

Operating expenses

               

Marketing (2)

    19,629       19,487  

Distribution (3)

    18,256       17,521  

Administrative (4)

    7,690       7,525  

Other general income

    (100 )     (42 )

Total Operating Expenses

    45,475       44,491  
                 

Operating Income

    18,360       16,610  
                 

Other income (expense)

               

Investment income

    1,160       1,354  

Interest expense & other

    (32 )     (24 )
                 

Earnings before income taxes

    19,488       17,940  
                 

Income taxes

    7,009       6,684  
                 

NET EARNINGS

  $ 12,479     $ 11,256  
                 

Earnings per diluted share

  $ 0.66     $ 0.60  
                 

Weighted average number of diluted shares

    18,839       18,801  
                 

Earnings per basic share

  $ 0.67     $ 0.60  
                 

Weighted average number of basic shares

    18,687       18,669  

 

(1) Includes share-based compensation expense of $133 and $112 for the three months ended December 26, 2015 and December 27, 2014, respectively.

(2) Includes share-based compensation expense of $201 and $172 for the three months ended December 26, 2015 and December 27, 2014, respectively.

(3) Includes share-based compensation expense of $11 and $11 for the three months ended December 26, 2015 and December 27, 2014, respectively.

(4) Includes share-based compensation expense of $173 and $229 for the three months ended December 26, 2015 and December 27, 2014, respectively.

 

The accompanying notes are an integral part of these statements.

 

 
4

 

  

J&J SNACK FOODS CORP. AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(in thousands)

 

   

Three months ended

 
   

December 26,

   

December 27,

 
   

2015

   

2014

 
                 

Net Earnings

  $ 12,479     $ 11,256  
                 

Foreign currency translation adjustments

    (640 )     (1,955 )

Unrealized holding loss on marketable securities

    (822 )     (1,922 )
                 

Total Other Comprehensive(Loss)Income, net of tax

    (1,462 )     (3,877 )
                 

Comprehensive Income

  $ 11,017     $ 7,379  
                 

All amounts are net of tax.

               

 

The accompanying notes are an integral part of these statements.

  

 

 
5

 

 

J & J SNACK FOODS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (in thousands)

 

   

Three months ended

 
   

December 26,

   

December 27,

 
   

2015

   

2014

 

Operating activities:

               

Net earnings

  $ 12,479     $ 11,256  

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

               

Depreciation of fixed assets

    8,170       7,981  

Amortization of intangibles and deferred costs

    1,455       1,434  

Share-based compensation

    518       526  

Deferred income taxes

    (36 )     (208 )

Loss on sale of marketable securities

    109       509  

Other

    89       (58 )

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

               

Decrease in accounts receivable

    10,527       16,023  

Increase in inventories

    (12,073 )     (10,522 )

Decrease(increase)in prepaid expenses

    3,141       (115 )

Decrease in accounts payable and accrued liabilities

    (3,461 )     (2,895 )

Net cash provided by operating activities

    20,918       23,931  

Investing activities:

               

Purchases of property, plant and equipment

    (13,304 )     (9,674 )

Purchases of marketable securities

    (21,329 )     (11,639 )

Proceeds from redemption and sales of marketable securities

    1,198       11,601  

Proceeds from disposal of property and equipment

    581       197  

Other

    (72 )     (47 )

Net cash used in investing activities

    (32,926 )     (9,562 )

Financing activities:

               

Payments to repurchase common stock

    (3,115 )     (1,670 )

Proceeds from issuance of stock

    640       1,098  

Payments on capitalized lease obligations

    (67 )     (39 )

Payment of cash dividend

    (6,723 )     (5,972 )

Net cash used in financing activities

    (9,265 )     (6,583 )

Effect of exchange rate on cash and cash equivalents

    (494 )     (1,471 )

Net (decrease) increase in cash and cash equivalents

    (21,767 )     6,315  

Cash and cash equivalents at beginning of period

    133,689       91,760  

Cash and cash equivalents at end of period

  $ 111,922     $ 98,075  

 

The accompanying notes are an integral part of these 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 26, 2015 and December 27, 2014 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 26, 2015.

 

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 $324,000 and $304,000 at December 26, 2015 and September 26, 2015, respectively.

 

 

 
7

 

  

Note 3

Depreciation of equipment and buildings is provided for by the straight-line method over the assets’ estimated useful lives. Amortization of improvements is provided for by the straight-line method over the term of the lease or the assets’ estimated useful lives, whichever is shorter. Licenses and rights, customer relationships and non-compete agreements arising from acquisitions are amortized by the straight-line method over periods ranging from 3 to 20 years. Depreciation expense was $8,170,000 and $7,981,000 for the three months ended December 26, 2015 and December 27, 2014, 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 December 26, 2015

 
   

Income

   

Shares

   

Per Share

 
   

(Numerator)

   

(Denominator)

   

Amount

 
                         
   

(in thousands, except per share amounts)

 

Basic EPS

                       

Net Earnings available to common stockholders

  $ 12,479       18,687     $ 0.67  
                         

Effect of Dilutive Securities

                       

Options

    -       152       (0.01 )
                         

Diluted EPS

                       

Net Earnings available to common stockholders plus assumed conversions

  $ 12,479       18,839     $ 0.66  

 

 

 
8

 

    

   

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  

     

Note 5

At December 26, 2015, the Company has three stock-based employee compensation plans. Share-based compensation was recognized as follows:

 

   

Three months ended

 
   

December 26,

   

December 27,

 
   

2015

   

2014

 
   

(in thousands, except per share amounts)

 
                 
                 

Stock Options

  $ 250     $ 284  

Stock purchase plan

    92       147  

Restricted stock issued to an employee

    1       1  

Total share-based compensation

  $ 343     $ 432  
                 

The above compensation is net of tax benefits

  $ 175     $ 92  

  

The Company anticipates that share-based compensation will not exceed $1.8 million net of tax benefits for the fiscal year ending September 24, 2016.

 

The Company did not grant any stock options during the 2016 and 2015 three month period.

 

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.

 

 
9

 

  

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 $339,000 and $334,000 on December 26, 2015 and September 26, 2015, 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 26, 2015 and September 26, 2015, respectively, the Company has $204,000 and $199,000 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 2019.  Early application is permitted.  We anticipate that the impact of this guidance on our consolidated financial statements will not be material.

 

 
10 

 

 

In September 2015, the FASB issued guidance on accounting for business combinations which require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined.  This guidance eliminates the requirement to retrospectively account for these adjustments.  This guidance is effective for our fiscal year ended September 2018.  Early adoption is permitted.  This guidance did not impact amounts and disclosures related to previous business combinations; therefore, the adoption of this guidance in the current quarter did not impact our consolidated financial statements.

 

In July 2015, the FASB issued guidance which requires an entity to measure inventory at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.  This guidance will simplify the subsequent measurement of inventory, as current guidance requires an entity to measure inventory at the lower of cost or market. Under current guidance, market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin.    This guidance is effective for our fiscal year ended September 2018.  Early adoption is permitted.  The adoption of this guidance in the current quarter did not have a material impact on our consolidated financial statements.

 

In November 2015, the FASB issued guidance on the balance sheet classification of deferred taxes which eliminates the current requirement to present deferred tax assets and liabilities as current and noncurrent in a classified balance sheet and now requires entities to classify all deferred tax assets and liabilities as noncurrent. This guidance is effective for our fiscal year ended September 2018.  Early adoption is permitted.   We anticipate that the impact of this guidance on our consolidated financial statements will not be material.

 

 
11

 

  

Note 8

Inventories consist of the following:

 

   

December 26,

   

September 26,

 
   

2015

   

2015

 
   

(unaudited)

         
   

(in thousands)

 
                 

Finished goods

  $ 42,338     $ 34,258  

Raw materials

    18,881       17,000  

Packaging materials

    7,300       5,949  

Equipment parts and other

    25,984       25,450  

Total Inventories

  $ 94,503     $ 82,657  
                 

The above inventories are net of reserves

  $ 2,443     $ 2,627  

  

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.

 

 

 
12

 

 

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.

 

 

 
13

 

 

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

 
   

December 26,

   

December 27,

 
   

2015

   

2014

 
   

(unaudited)

 
    (in thousands)  

Sales to External Customers:

               

Food Service

               

Soft pretzels

  $ 38,699     $ 40,718  

Frozen juices and ices

    8,315       8,201  

Churros

    13,936       12,967  

Handhelds

    6,146       5,158  

Bakery

    76,601       74,431  

Other

    3,055       2,086  

Total Food Service

  $ 146,752     $ 143,561  
                 

Retail Supermarket

               

Soft pretzels

  $ 8,740     $ 9,200  

Frozen juices and ices

    9,064       9,155  

Handhelds

    3,875       4,879  

Coupon redemption

    (574 )     (1,073 )

Other

    155       226  

Total Retail Supermarket

  $ 21,260     $ 22,387  
                 

Frozen Beverages

               

Beverages

  $ 28,070     $ 25,510  

Repair and maintenance service

    17,763       15,310  

Machines sales

    8,732       5,747  

Other

    273       237  

Total Frozen Beverages

  $ 54,838     $ 46,804  
                 

Consolidated Sales

  $ 222,850     $ 212,752  
                 

Depreciation and Amortization:

               

Food Service

  $ 5,385     $ 5,190  

Retail Supermarket

    286       316  

Frozen Beverages

    3,954       3,909  

Total Depreciation and Amortization

  $ 9,625     $ 9,415  
                 

Operating Income :

               

Food Service

  $ 15,902     $ 15,493  

Retail Supermarket

    1,090       666  

Frozen Beverages

    1,368       451  

Total Operating Income

  $ 18,360     $ 16,610  
                 

Capital Expenditures:

               

Food Service

  $ 8,084     $ 6,133  

Retail Supermarket

    156       23  

Frozen Beverages

    5,064       3,518  

Total Capital Expenditures

  $ 13,304     $ 9,674  
                 

Assets:

               

Food Service

  $ 546,264     $ 521,702  

Retail Supermarket

    23,099       22,610  

Frozen Beverages

    172,275       158,552  

Total Assets

  $ 741,638     $ 702,864  

  

 

 
14

 

  

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 26, 2015 and September 26, 2015 are as follows:

 

   

December 26, 2015

   

September 26, 2015

 
   

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       545       592       538  

Customer relationships

    40,797       34,487       40,797       33,584  

License and rights

    3,606       2,826       3,606       2,802  

TOTAL FOOD SERVICE

  $ 58,067     $ 37,858     $ 58,067     $ 36,924  
                                 

RETAIL SUPERMARKETS

                               
                                 

Indefinite lived intangible assets

                               

Trade Names

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

Amortized Intangible Assets

                               

Non compete agreements

    160       132       160       114  

Customer relationships

    7,979       1,420       7,979       1,220  

TOTAL RETAIL SUPERMARKETS

  $ 15,345     $ 1,552     $ 15,345     $ 1,334  
                                 

FROZEN BEVERAGES

                               
                                 

Indefinite lived intangible assets

                               

Trade Names

  $ 9,315     $ -     $ 9,315     $ -  
                                 

Amortized intangible assets

                               

Non compete agreements

    198       198       198       198  

Customer relationships

    6,678       6,234       6,678       6,075  

Licenses and rights

    1,601       872       1,601       854  

TOTAL FROZEN BEVERAGES

  $ 17,792     $ 7,304     $ 17,792     $ 7,127  
                                 

CONSOLIDATED

  $ 91,204     $ 46,714     $ 91,204     $ 45,385  

  

 

 
15

 

   

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 26, 2015. Aggregate amortization expense of intangible assets for the three months ended December 26, 2015 and December 27, 2014 was $1,329,000 and $1,355,000 respectively.

 

Estimated amortization expense for the next five fiscal years is approximately $5,100,000 in 2016, $2,600,000 in 2017, $1,800,000 in 2018, $1,700,000 in 2019 and $1,400,000 in 2020. The weighted average amortization period of the intangible assets is 10.0 years.

 

Goodwill

 

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

 

            Retail      Frozen          
    Food     Service     Supermarket     Beverages  

Total

  (in thousands)  
                                 

Balance at December 26, 2015

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

Balance at September 26, 2015

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

           

There was no goodwill acquired in the three months ended December 26, 2015.  

  

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;

 

 

 
16

 

 

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 consist primarily of investments in mutual funds, preferred stock and corporate bonds.  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 values of preferred stock and corporate bonds are based on quoted prices for identical or similar instruments in markets that are not active.  As a result, preferred stock and corporate bonds are 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 26, 2015 are summarized as follows:

 

           

Gross

   

Gross

   

Fair

 
   

Amortized

   

Unrealized

   

Unrealized

   

Market

 
   

Cost

   

Gains

   

Losses

   

Value

 
    (in thousands)  
                                 

Corporate Bonds

  $ 87,772     $ 14     $ 1,534     $ 86,252  

Total investment securities held to maturity

  $ 87,772     $ 14     $ 1,534     $ 86,252  

   

The amortized cost, unrealized gains and losses, and fair market values of our investment securities available for sale at December 26, 2015 are summarized as follows:

  

           

Gross

   

Gross

   

Fair

 
   

Amortized

   

Unrealized

   

Unrealized

   

Market

 
   

Cost

   

Gains

   

Losses

   

Value

 
    (in thousands)  
                                 

Mutual Funds

  $ 18,733     $ -     $ 1,262     $ 17,471  

Preferred Stock

    20,473       17       453       20,037  

Total investment securities available for sale

  $ 39,206     $ 17     $ 1,715     $ 37,508  

 

The mutual funds seek current income with an emphasis on maintaining low volatility and overall moderate duration. The unrealized losses of $1.3 million are spread over 4 funds with total fair market value of $17.5 million. The Fixed-to-Floating Perpetual Preferred Stock generate fixed income to call dates in 2018, 2019 and 2025 and then income is based on a spread above LIBOR if the securities are not called. The mutual funds and Fixed-to-Floating Perpetual Preferred Stock 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.

 

 

 
17

 

 

The corporate bonds generate fixed income to maturity dates in 2017 through 2021, with $65 million maturing within 3 years. Our expectation is that we will hold the corporate bonds to their maturity dates and redeem them at our amortized cost. 

  

The amortized cost, unrealized gains and losses, and fair market values of our investment securities held to maturity at September 26, 2015 are summarized as follows:

 

           

Gross

   

Gross

   

Fair

 
   

Amortized

   

Unrealized

   

Unrealized

   

Market

 
   

Cost

   

Gains

   

Losses

   

Value

 
    (in thousands)  
                                 

Corporate Bonds

  $ 66,660     $ 15     $ 663     $ 66,012  

Total investment securities held to maturity

  $ 66,660     $ 15     $ 663     $ 66,012  

  

The amortized cost, unrealized gains and losses, and fair market values of our investment securities available for sale at September 26, 2015 are summarized as follows:

 

           

Gross

   

Gross

   

Fair

 
   

Amortized

   

Unrealized

   

Unrealized

   

Market

 
   

Cost

   

Gains

   

Losses

   

Value

 
    (in thousands)  
                                 

Mutual Funds

  $ 20,041     $ -     $ 827     $ 19,214  

Preferred Stock

    20,473       114       163       20,424  

Total investment securities available for sale

  $ 40,514     $ 114     $ 990     $ 39,638  

 

 

 
18

 

 

The amortized cost and fair value of the Company’s held to maturity securities by contractual maturity at December 26, 2015 and September 26, 2015 are summarized as follows:

   

   

December 26, 2015

   

September 26, 2015

 
                                 
           

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

    86,685       85,191       63,522       63,010  

Due after five years through ten years

    1,087       1,061       3,138       3,002  

Total held to maturity securities

  $ 87,772     $ 86,252     $ 66,660     $ 66,012  

Less current portion

    -       -       -       -  

Long term held to maturity securities

  $ 87,772     $ 86,252     $ 66,660     $ 66,012  

 

Proceeds from the redemption and sale of marketable securities were $1,198,000 and $11,601,000 in the three months ended December 26, 2015 and December 27, 2014, respectively, with a loss of $109,000 recorded in the three months ended December 26, 2015 and $509,000 recorded in the three months ended December 27, 2014. We use the specific identification method to determine the cost of securities sold.

 

 

 
19

 

  

Note 12 Changes to the components of other accumulated comprehensive loss are as follows:

 

    Three Months ended December 26, 2015  
    (unaudited)  
    (in thousands)  
                         
           

Unrealized Holding

         
   

Foreign Currency

   

Loss on

         
   

Translation Adjustments

   

Marketable Securities

   

Total

 
                         

Beginning Balance

  $ (10,021 )   $ (876 )   $ (10,897 )
                         

Other comprehensive (loss) income before reclassifications

    (640 )     (892 )     (1,532 )
                         

Amounts reclassified from accumulated other comprehensive income

    -       70       70  
                         

Ending Balance

  $ (10,661 )   $ (1,698 )   $ (12,359 )

 

All amounts are net of tax.

 

 

    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) income 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.

 

 

 
20

 

 

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 $.39 per share of its common stock payable on January 7, 2016, to shareholders of record as of the close of business on December 22, 2015.

 

In our fiscal year ended September 26, 2015, we purchased and retired 72,698 shares of our common stock at a cost of $8,011,118. In the quarter ended December 26, 2015, we purchased and retired 27,083 shares of our common stock at a cost of $3,115,439. 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; 162,392 shares remain to be purchased under this authorization.

 

In the three months ended December 26, 2015 and December 27, 2014 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 $640,000 in accumulated other comprehensive loss in the 2016 first quarter and an increase of $1,955,000 in accumulated other comprehensive loss in the 2015 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 26, 2015.

  

Results of Operations

 

Net sales increased $10,098,000 or 5% to $222,850,000 for the three months ended December 26, 2015 compared to the three months ended December 27, 2014.

  

FOOD SERVICE

 

Sales to food service customers increased $3,191,000 or 2% in the first quarter to $146,752,000.  Soft pretzel sales to the food service market decreased 5% to $38,699,000 in the first quarter due primarily to lower sales to school food service, warehouse club stores and restaurant chains.

 

 

 
21

 

 

Frozen juices and ices sales for the quarter were up 1% to $8,315,000 with sales increases and decreases throughout our customer base. Churro sales to food service customers increased 7% to $13,936,000 in the first quarter with sales increases and decreases throughout our customer base.

 

Sales of bakery products increased $2,170,000 or 3% in the first quarter to $76,601,000 as sales increases to two customers and school food service accounted for all of the sales increase.

 

     Sales of handhelds increased $988,000, or 19%, with sales to one customer accounting for all of the increase. Sales of funnel cake products increased $1,009,000, or 58%, primarily due to increased sales to school food service.

 

Sales of new products in the first twelve months since their introduction were approximately $2.2 million in this quarter. Price increases accounted for approximately $4.0 million of sales in the quarter and net volume decreases, including new product sales as defined above, accounted for approximately $800,000 of sales decline in the quarter.

 

Operating income in our Food Service segment increased from $15,493,000 to $15,902,000 in the quarter. Operating income for the quarter increased primarily because of lower marketing expenses.

 

RETAIL SUPERMARKETS

 

Sales of products to retail supermarkets decreased $1,127,000 or 5% to $21,260,000 in the first quarter. Soft pretzel sales for the first quarter were down 5% to $8,740,000 due primarily to the discontinuance of SUPERPRETZEL BAVARIAN Soft Pretzel Bread which was introduced in the year ago quarter. Sales of frozen juices and ices decreased $91,000 or 1% to $9,064,000 in the first quarter. Coupon redemption costs, a reduction of sales, decreased 47% or about $499,000 for the quarter. Handheld sales to retail supermarket customers decreased 21% to $3,875,000 in the quarter with a sales decrease to one customer and trade spending for the introduction of new products accounting for about 2/3 of the decrease.

 

Sales of new products in the first twelve months since their introduction were approximately $300,000 in the quarter. Price increases accounted for approximately $650,000 of sales in the quarter and net volume decreases, including new product sales as defined above and net of decreased coupon costs, accounted for approximately $1.8 million of the sales decrease in this quarter. Operating income in our Retail Supermarkets segment increased from $666,000 to $1,090,000 in the quarter primarily because of lower coupon and advertising expenses, which were higher a year ago to introduce our SUPERPRETZEL BAVARIAN Soft Pretzel Bread.

 

 
22

 

   

FROZEN BEVERAGES

 

Frozen beverage and related product sales increased 17% to $54,838,000 in the first quarter. Beverage related sales alone were up 10% in the quarter.   Gallon sales were up 11% for the quarter with about 2/3 of the increase coming from movie theater chains. Service revenue increased 16% to $17,763,000 in the first quarter with sales increases and decreases throughout our customer base.

 

Sales of beverage machines, which tend to fluctuate from year to year while following no specific trend, were $8,732,000 or 52% higher in the three month period. The approximate number of company owned frozen beverage dispensers was 53,800 and 53,100 at December 26, 2015 and September 26, 2015, respectively. Operating income in our Frozen Beverage segment was $1,368,000 in this year’s quarter compared to $451,000 last year as higher sales in all areas of the business contributed to the improvement in operating income.

 

CONSOLIDATED

 

Gross profit as a percentage of sales was about the same at 28.64% in this year’s three month period and 28.72% last year.

 

Total operating expenses increased $984,000 in this quarter but as a percentage of sales decreased from 20.9% percent to 20.4%. Marketing expenses decreased to 8.81% of sales from 9.16%, distribution expenses decreased to 8.19% of sales from 8.24% and administrative expenses decreased to 3.45% of sales from 3.54%. Marketing expenses decreased as a percent of sales because of the much higher frozen beverage sales relative to marketing expenses and generally lower marketing expenses in our food service segment.      

 

Operating income increased $1,750,000 or 11% to $18,360,000 in the first quarter as a result of the aforementioned items.      

 

Investment income decreased by $194,000 in the quarter due primarily to lower yields on our investments as we have decreased our holdings of mutual funds and reinvested the proceeds into corporate bonds.

 

 

 
23

 

 

The effective income tax rate has been estimated at 36% for this year’s quarter and 37% for last year’s quarter. We are estimating an effective income tax rate of approximately 36% for the year. Last year’s quarter’s rate was impacted by a low tax benefit on share based compensation and by realized losses on sales of investment securities that are not deductible. 

 

Net earnings increased $1,223,000 or 11% in the current three month period to $12,479,000 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 2015 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 26, 2015, 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.

 

 

 
24

 

 

There has been no change in the Company’s internal control over financial reporting during the quarter ended December 26, 2015, 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 December 26, 2015, 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

 

 

 
25

 

   

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 25, 2016

 

/s/ Gerald B. Shreiber

 

 

 

Gerald B. Shreiber

 

 

 

Chairman of the Board,

 

    President, Chief Executive Officer and Director  
    (Principal Executive Officer)  

 

 

Dated: January 25, 2016

 

/s/ Dennis G. Moore

 

 

 

Dennis G. Moore, Senior Vice President, Chief Financial Officer and Director

 

 

 

(Principal Financial Officer)

 

    (Principal Accounting Officer)  

 

26