JJSF 10-Q Quarter ended Dec. 24, 2016

New Jersey

22-1935537

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

X     Yes

No

Large Accelerated filer (X)

Accelerated filer ( )

Non-accelerated filer ( )

Smaller reporting company ( )

Page
Number

December 24,

September 24,

2016

2016

(unaudited)

Assets

Current assets

Cash and cash equivalents

Marketable securities held to maturity

Accounts receivable, net

Inventories

Prepaid expenses and other

Total current assets

Property, plant and equipment, at cost

Land

Buildings

Plant machinery and equipment

Marketing equipment

Transportation equipment

Office equipment

Improvements

Construction in progress

Total Property, plant and equipment, at cost

Less accumulated depreciation and amortization

Property, plant and equipment, net

Other assets

Goodwill

Other intangible assets, net

Marketable securities held to maturity

Marketable securities available for sale

Other

Total other assets

Total Assets

Liabilities and Stockholders' Equity

Current Liabilities

Current obligations under capital leases

Accounts payable

Accrued insurance liability

Accrued liabilities

Accrued compensation expense

Dividends payable

Total current liabilities

Long-term obligations under capital leases

Deferred income taxes

Other long-term liabilities

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 18,697,000 and 18,668,000 respectively

Accumulated other comprehensive loss

Retained Earnings

Total stockholders' equity

Total Liabilities and Stockholders' Equity

Three months ended

December 24,

December 26,

2016

2015

Net Sales

Cost of goods sold ⁽¹⁾

Gross Profit

Operating expenses

Marketing ⁽²⁾

Distribution ⁽³⁾

Administrative ⁽⁴⁾

Other general income

Total Operating Expenses

Operating Income

Other income (expense)

Investment income

Interest expense & other

Earnings before income taxes

Income taxes

NET EARNINGS

Earnings per diluted share

Weighted average number of diluted shares

Earnings per basic share

Weighted average number of basic shares

(1)

(2)

(3)

(4)

Three months ended

December 24,

December 26,

2016

2015

Net Earnings

Foreign currency translation adjustments

Unrealized holding loss on marketable securities

Total Other Comprehensive(Loss)Income

Comprehensive Income

Three months ended

December 24,

December 26,

2016

2015

Operating activities:

Net earnings

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

Depreciation of fixed assets

Amortization of intangibles and deferred costs

Share-based compensation

Deferred income taxes

Loss on sale of marketable securities

Other

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

Decrease in accounts receivable

Increase in inventories

Decrease in prepaid expenses

Decrease in accounts payable and accrued liabilities

Net cash provided by operating activities

Investing activities:

Purchases of property, plant and equipment

Purchases of marketable securities

Proceeds from redemption and sales of marketable securities

Proceeds from disposal of property and equipment

Other

Net cash used in investing activities

Financing activities:

Payments to repurchase common stock

Proceeds from issuance of stock

Payments on capitalized lease obligations

Payment of cash dividend

Net cash used in financing activities

Effect of exchange rate on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

Note 1

The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all information and notes required by generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the Notes to Consolidated Financial Statements included in the Company’s  Annual Report on Form 10-K for the year ended September 24, 2016 .

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.

The results of operations for the three months ended December 24, 2016 and December 26, 2015 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 24, 2016.

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 $585,000 and $571,000 at December 24, 2016 and September 24, 2016, 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 $8,728,000 and $8,170,000 for the three months ended December 24, 2016 and December 26, 2015, 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 24, 2016

Income

Shares

Per Share

(Numerator)

(Denominator)

Amount

(in thousands, except per share amounts)

Basic EPS

Net Earnings available to common stockholders

Effect of Dilutive Securities

Options

Diluted EPS

Net Earnings available to common stockholders plus assumed conversions

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

Effect of Dilutive Securities

Options

Diluted EPS

Net Earnings available to common stockholders plus assumed conversions

Note 5

At December 24, 2016, the Company has three stock-based employee compensation plans. Share-based compensation was recognized as follows:

Three months ended

December 24,

December 26,

2016

2015

(in thousands, except per share amounts)

Stock Options

Stock purchase plan

Restricted stock issued to an employee

Total share-based compensation

The above compensation is net of tax benefits

The fair value of each option grant is estimated on the date of grant using the Black-Scholes options-pricing model with the following weighted average assumptions used for grants in fiscal 2017 first three months: expected volatility of 15.8%; risk-free interest rate of 1.1%; dividend rate of 1.3% and expected lives of 5 years.

During the 2017 three month period, the Company granted 300 stock options at a weighted-average grant date fair value of $15.15.

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

Expected volatility is based on the historical volatility of the price of our common shares over the past 51 months for 5 year options and 10 years for 10 year options. We use historical information to estimate expected life and forfeitures within the valuation model. The expected term of awards represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Compensation cost is recognized using a straight-line method over the vesting or service period and is net of estimated forfeitures.

Note 6

We account for our income taxes under the liability method. Under the liability method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates that will be in effect when these differences reverse.  Deferred tax expense is the result of changes in deferred tax assets and liabilities.

Additionally, we recognize a liability for income taxes and associated penalties and interest for tax positions taken or expected to be taken in a tax return which are more likely than not to be overturned by taxing authorities (“uncertain tax positions”). We have not recognized a tax benefit in our financial statements for these uncertain tax positions.

The total amount of gross unrecognized tax benefits is $359,000 and $354,000 on December 24, 2016 and September 24, 2016, 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 24, 2016 and September 24, 2016, respectively, the Company has $224,000 and $219,000 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.  Our analysis indicates that the impact of this guidance on our consolidated financial statements will not be material.

In January 2016,  the FASB issued guidance which requires an entity to measure equity investments at fair value with changes in fair value recognized in net income , to use the price that would be received by a seller when measuring the fair value of financial instruments for disclosure purposes, and which eliminates the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet.  Under present guidance, changes in fair value of equity investments are recognized in Stockholders’ Equity.   This guidance is effective for our fiscal year ended September 2019.  Early adoption is not permitted. We anticipate that the adoption of this guidance on our consolidated financial statements will not be material.

In February 2016, the FASB issued guidance on lease accounting which requires that an entity recognize most leases on its balance sheet.  The guidance retains a dual lease accounting model for purposes of income statement recognition, continuing the distinction between what are currently known as “capital” and “operating” leases for lessees.  This guidance is effective for our fiscal year ended September 2020.   We anticipate that the impact of this guidance on our financial statements will be material .

Note 8

Inventories consist of the following:

December 24,

September 24,

2016

2016

(unaudited)

(in thousands)

Finished goods

Raw materials

Packaging materials

Equipment parts and other

Total Inventories

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:

Three months ended

December 24,

December 26,

2016

2015

Sales to External Customers:

Food Service

Soft pretzels

Frozen juices and ices

Churros

Handhelds

Bakery

Other

Total Food Service

Retail Supermarket

Soft pretzels

Frozen juices and ices

Handhelds

Coupon redemption

Other

Total Retail Supermarket

Frozen Beverages

Beverages

Repair and maintenance service

Machines sales

Other

Total Frozen Beverages

Consolidated Sales

Depreciation and Amortization:

Food Service

Retail Supermarket

Frozen Beverages

Total Depreciation and Amortization

Operating Income :

Food Service

Retail Supermarket

Frozen Beverages

Total Operating Income

Capital Expenditures:

Food Service

Retail Supermarket

Frozen Beverages

Total Capital Expenditures

Assets:

Food Service

Retail Supermarket

Frozen Beverages

Total Assets

Note 10

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

December 24, 2016

September 24, 2016

Gross

Gross

Carrying

Accumulated

Carrying

Accumulated

Amount

Amortization

Amount

Amortization

FOOD SERVICE

Indefinite lived intangible assets

Trade Names

Amortized intangible assets

Non compete agreements

Customer relationships

License and rights

TOTAL FOOD SERVICE

RETAIL SUPERMARKETS

Indefinite lived intangible assets

Trade Names

Amortized Intangible Assets

Non compete agreements

Customer relationships

TOTAL RETAIL SUPERMARKETS

FROZEN BEVERAGES

Indefinite lived intangible assets

Trade Names

Amortized intangible assets

Non compete agreements

Customer relationships

Licenses and rights

TOTAL FROZEN BEVERAGES

CONSOLIDATED

Total

Food

Retail

Service

Frozen

Supermarket

Beverages

Balance at December 24, 2016

Balance at September 24, 2016

Note 11

We have classified our investment securities as marketable securities held to maturity and available for sale. The FASB defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the FASB has established three levels of inputs that may be used to measure fair value:

Level 1

Observable input such as quoted prices in active markets for identical assets or liabilities;

Level 2

Observable inputs, other than Level 1 inputs in active markets, that are observable either directly or indirectly; and

Level 3

Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.

Gross

Gross

Fair

Amortized

Unrealized

Unrealized

Market

Cost

Gains

Losses

Value

Corporate Bonds

Certificates of Deposit

Total investment securities held to maturity

Gross

Gross

Fair

Amortized

Unrealized

Unrealized

Market

Cost

Gains

Losses

Value

Mutual Funds

Preferred Stock

Total investment securities available for sale

Gross

Gross

Fair

Amortized

Unrealized

Unrealized

Market

Cost

Gains

Losses

Value

Corporate Bonds

Certificates of Deposit

Total investment securities held to maturity

Gross

Gross

Fair

Amortized

Unrealized

Unrealized

Market

Cost

Gains

Losses

Value

Mutual Funds

Preferred Stock

Total investment securities available for sale

December 24, 2016

September 24, 2016

Fair

Fair

Amortized

Market

Amortized

Market

Cost

Value

Cost

Value

Due in one year or less

Due after one year through five years

Due after five years through ten years

Total held to maturity securities

Less current portion

Long term held to maturity securities

Unrealized Holding

Foreign Currency

Loss on

Translation Adjustments

Marketable Securities

Total

Beginning Balance

Other comprehensive (loss) income before reclassifications

Amounts reclassified from accumulated other comprehensive income

Ending Balance

Unrealized Holding

Foreign Currency

Loss on

Translation Adjustments

Marketable Securities

Total

Beginning Balance

Other comprehensive (loss) income before reclassifications

Amounts reclassified from accumulated other comprehensive income

Ending Balance

Note 13

On January 3, 2017 , we acquired Hill & Valley Inc., a premium bakery located in Rock Island, IL., for approximately $31 million.   Hill & Valley, with sales of over $45 million annually, is a manufacturer of a variety of pre-baked cakes, cookies, pies, muffins and other desserts to retail in-store bakeries.  Hill & Valley is a leading brand of Sugar Free and No Sugar Added pre-baked in-store bakery items. Additionally, Hill & Valley sustains strategic private labeling partnerships with retailers nationwide.

Item 2.

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

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 2016 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 24, 2016, 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 24, 2016, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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 24, 2016, 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

Dated: January 26, 2017

/s/ Gerald B. Shreiber

Gerald B. Shreiber

Chairman of the Board, President, Chief Executive Officer and Director

Dated: January 26, 2017

/s/ Dennis G. Moore

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

(Principal Financial Officer)