J&J Snack Foods Corp.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the period ended March 29, 1997 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 (609) 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 As of April 24, 1997, there were 8,766,241 shares of the Registrant's Common Stock outstanding.

INDEX Page Number Part I. Financial Information Item 1. Consolidated Financial Statements Consolidated Balance Sheets - March 29, 1997 and September 28, 1996................................... 3 Consolidated Statements of Earnings - Three Months and Six Months Ended March 29, 1997 and March 30, 1996... 5 Consolidated Statements of Cash Flows - Six Months Ended March 29, 1997 and March 30, 1996.............. 6 Notes to the Consolidated Financial Statements.......... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............. 9 Part II. Other Information Item 1. Legal Proceedings................................... 12 Item 4. Submission of Matters to a Vote of Security Holders. 12 Item 6. Exhibits and Reports on Form 8-K.................... 12 PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements J & J SNACK FOODS CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS March 29, September 28, 1997 1996 (Unaudited) Current assets Cash and cash equivalents $ 486,000 $ 10,547,000 Marketable securities available for sale - 1,217,000 Accounts receivable 24,341,000 18,202,000 Inventories 14,493,000 11,276,000 Prepaid expenses and deposits 1,236,000 980,000 40,556,000 42,222,000 Property, plant and equipment, at cost Land 819,000 819,000 Buildings 5,119,000 5,119,000 Plant machinery and equipment 50,454,000 41,158,000 Marketing equipment 83,249,000 81,144,000 Transportation equipment 1,778,000 1,754,000 Office equipment 4,373,000 3,727,000 Improvements 7,543,000 7,053,000 Construction in progress 1,834,000 1,326,000 155,169,000 142,100,000 Less accumulated depreciation and amortization 90,376,000 83,890,000 64,793,000 58,210,000 Other assets Goodwill, trademarks and rights, less accumulated amortization 20,223,000 9,326,000 Long term investment securities available for sale 495,000 990,000 Long term investment securities held to maturity 3,411,000 9,497,000 Sundry 2,892,000 2,883,000 27,021,000 22,696,000 $132,370,000 $123,128,000 See accompanying notes to the consolidated financial statements. 3 J & J SNACK FOODS CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - Continued LIABILITIES AND March 29, September 28, STOCKHOLDERS' EQUITY 1997 1996 (Unaudited) Current liabilities Short-term borrowings $ 2,000,000 $ - Current maturities of long- term debt 8,000 8,000 Accounts payable 13,868,000 10,394,000 Accrued liabilities 9,527,000 7,038,000 25,403,000 17,440,000 Long-term debt, less current maturities 5,006,000 5,010,000 Deferred income 615,000 567,000 Deferred income taxes 3,403,000 3,403,000 Stockholders' equity Capital stock Preferred, $1 par value; authorized, 5,000,000 shares; none issued - - Common, no par value; authorized, 25,000,000 shares; issued and outstanding, 8,767,000 and 8,749,000, respectively 36,099,000 35,818,000 Foreign currency translation adjustment (1,419,000) (1,356,000) Retained earnings 63,263,000 62,246,000 97,943,000 96,708,000 $132,370,000 $123,128,000 See accompanying notes to the consolidated financial statements. 4 J & J SNACK FOODS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) Three months ended Six months ended March 29, March 30, March 29, March 30, 1997 1996 1997 1996 Net Sales $50,305,000 $42,138,000 $93,906,000 $85,001,000 Cost of goods sold 25,909,000 21,580,000 48,367,000 43,276,000 Gross profit 24,396,000 20,558,000 45,539,000 41,725,000 Operating expenses Marketing 15,706,000 13,585,000 30,062,000 27,465,000 Distribution 4,664,000 4,241,000 9,117,000 8,484,000 Administrative 2,194,000 1,828,000 4,178,000 3,724,000 Amortization of intangibles and deferred costs 436,000 207,000 782,000 415,000 23,000,000 19,861,000 44,139,000 40,088,000 Operating income 1,396,000 697,000 1,400,000 1,637,000 Other income (deductions) Investment income 141,000 365,000 396,000 776,000 Interest expense (122,000) (91,000) (215,000) (191,000) Sundry 26,000 (13,000) 33,000 4,000 Earnings before income taxes 1,441,000 958,000 1,614,000 2,226,000 Income taxes 535,000 333,000 597,000 774,000 NET EARNINGS $ 906,000 $ 625,000 $ 1,017,000 $ 1,452,000 Earnings per common share $ .10 $ .07 $ .11 $ .16 Weighted average number of shares 8,910,000 9,101,000 8,885,000 9,144,000 See accompanying notes to the consolidated financial statements. 5 J & J SNACK FOODS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six months ended March 29, March 30 1997 1996 Cash flows from operating activities: Net earnings $ 1,017,000 $ 1,452,000 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization of fixed assets 8,241,000 7,648,000 Amortization of intangibles and deferred costs 969,000 511,000 Other adjustments 58,000 (19,000) Changes in assets and liabilities (Increase) decrease in accounts receivable (4,686,000) 1,449,000 (Increase) decrease in inventories (1,996,000) 320,000 (Increase) decrease in prepaid expenses (209,000) 264,000 Increase (decrease) in accounts payable and accrued liabilities 2,563,000 (1,553,000) Net cash provided by operating activities 5,957,000 10,072,000 Cash flows from investing activities: Purchases of property, plant and equipment (6,927,000) (6,060,000) Payments for purchases of companies, net of cash acquired and debt assumed (19,052,000) - Proceeds from investments held to maturity 6,075,000 350,000 Payments for investments held to maturity - (1,750,000) Proceeds from investments available for sale 1,710,000 3,465,000 Payments for investments available for sale - (2,558,000) Proceeds from sale of property and equipment 134,000 81,000 Other (74,000) (35,000) Net cash used in investing activities (18,134,000) (6,507,000) Cash flows from financing activities: Proceeds from short-term borrowing 2,000,000 - Proceeds from issuance of common stock 120,000 122,000 Payments to repurchase common stock - (2,910,000) Payments of long-term debt (4,000) (18,000) Net cash provided by (used in) financing activities 2,116,000 (2,806,000) Net (decrease) increase in cash and cash equivalents (10,061,000) 759,000 Cash and cash equivalents at beginning of period 10,547,000 10,696,000 Cash and cash equivalents at end of period $ 486,000 $11,455,000 See accompanying notes to the consolidated financial statements. 6 J & J SNACK FOODS CORP. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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. The results of operations for the three months and six months ended March 29, 1997 and March 30, 1996 are not necessarily indicative of results for the full year. Sales of the Company's retail stores are generally higher in the first quarter due to the holiday shopping season. Sales of the Company's frozen carbonated beverages and Italian ice products are generally higher in the third and fourth quarters due to seasonal factors. While the Company believes 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 year ended September 28, 1996. Note 2 Earnings per Share ("EPS")are based on the weighted average number of common shares outstanding, including common stock equivalents (stock options). The Financial Accounting Standards Board ("FASB") has issued a Statement of Financial Accounting Standard ("SFAS") No. 128, Earnings Per Share, which is effective for financial statements issued after December 15, 1997. Once effective, this new standard eliminates primary and fully diluted EPS and instead requires presentation of basic and diluted EPS in conjunction with the disclosure of the methodology used in computing such EPS. Basic EPS excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS takes into consideration the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock. The adoption of this new standard is not expected to have a material impact on the disclosure of EPS. The effect of adopting this new standard has not been determined. 7 Note 3 Inventories consist of the following: March 29, September 28, 1997 1996 Finished goods $ 7,743,000 $ 5,534,000 Raw materials 2,216,000 1,387,000 Packaging materials 2,188,000 2,009,000 Equipment parts & other 2,346,000 2,346,000 $14,493,000 $11,276,000 Note 4 The amortized cost, unrealized gains and losses, and fair market values of the Company's investment securities available for sale and held to maturity at March 29, 1997 are summarized as follows: Gross Gross Fair Amortized Unrealized Unrealized Market Cost Gains Losses Value Available for Sale Securities Equity Securities $ - $12,000 $ - $ 12,000 Corporate Debt Securities 495,000 - 7,000 488,000 Municipal Government Securities - - - - $ 495,000 $12,000 $ 7,000 $ 500,000 Held to Maturity Securities Corporate Debt Securities $ 981,000 $ 4,000 $ 16,000 $ 969,000 Municipal Government Securities 1,930,000 3,000 53,000 1,880,000 Other 500,000 - - 500,000 $3,411,000 $ 7,000 $ 69,000 $3,349,000 The amortized cost, unrealized gains and losses, and fair market values of the Company's investment securities available for sale and held to maturity at September 28, 1996 are summarized as follows: Gross Gross Fair Amortized Unrealized Unrealized Market Cost Gains Losses Value Available for sale securities Equity securities $ - $ 9,000 $ - $ 9,000 Corporate debt securities 495,000 - 52,000 443,000 Municipal government securities 1,712,000 6,000 2,000 1,716,000 $2,207,000 $15,000 $ 54,000 $2,168,000 Held to maturity securities Corporate debt securities $ 992,000 $ 9,000 $ 8,000 $ 993,000 Municipal government securities 8,005,000 28,000 67,000 7,966,000 Other 500,000 - - 500,000 $9,497 000 $ 37,000 $ 75,000 $9,459,000 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources The Company's cash expected to be provided by future operations and its available lines of credit are its primary sources of short term liquidity. The Company believes that these sources, along with its borrowing capacity, are sufficient to fund future growth and expansion. In the six months ended March 29, 1997, the devaluation of the Mexican peso caused a reduction of $63,000 in stockholders' equity because of the revaluation of the net assets of the Company's Mexican frozen carbonated beverage subsidiary. In January 1997, the Company acquired the assets of Mama Tish's International Foods for the assumption of some of its liabilities. Mama Tish is a manufacturer and distributor of Italian ices, sorbets and other frozen juice products with annual sales of approximately $15 million. In November 1996, the Company acquired all of the common stock of Pretzels, Inc. for cash. Trading as Texas Twist, Pretzels, Inc. is a soft pretzel manufacturer selling to both the food service and retail supermarket industries with annual sales of approximately $1.4 million. In October 1996, the Company acquired the assets of Bakers Best Snack Foods Corp. for cash. Bakers Best is a manufacturer of soft pretzels selling to both the food service and retail supermarket industries with annual sales of approximately $4 million. Available to the Company are unsecured general purpose bank lines of credit totalling $30,000,000. Borrowings under the lines at March 29, 1997 were $2,000,000. Results of Operations Net sales increased $8,167,000 or 19% to $50,305,000 for the three months and $8,905,000 or 10% to $93,906,000 for the six months ended March 29, 1997 compared to the six months ended March 30, 1996. Excluding sales of acquired businesses, net sales increased $3,526,000 or 8% for the three months and $2,244,000 or 3% for the six months. Sales to food service customers increased $4,344,000 or 22% in the second quarter to $24,044,000 and $3,658,000 or 9% for the six months. Excluding sales of acquired businesses, sales to food service customers increased $1,172,000 or 6% for the quarter and decreased $737,000 or 2% for the six months. All of the $737,000 sales decrease was the result of non recurring equipment sales in last year's first quarter. Soft pretzel sales to the food service market increased 12% to $14,840,000 in the second quarter and 5% to $29,295,000 in the six months. Excluding sales of acquired businesses, food service soft pretzel sales increased $428,000 or 3% in the second quarter and decreased $455,000 or 2% in the six month period. Two customers accounted for all of the six months' sales decrease. Italian ice 9 and frozen juice treat and dessert sales increased 89% to $5,639,000 in the three months and 56% to $9,167,000 in the six months. Over 70% of the Italian ice and frozen juice and dessert sales increase was from sales of acquired businesses. Churro sales to food service customers decreased 8% to $2,379,000 in the second quarter and 2% to $4,848,000 in the six months. Sales of products to retail supermarkets increased $1,109,000 or 12% to $10,316,000 in the second quarter and 8% to $17,742,000 in the first half. Excluding sales of acquired businesses, sales to retail supermarkets were flat in the quarter and up 1% for the six months. Soft pretzel sales for the second quarter and six months were up 8% to $7,647,000 and $13,972,000, respectively, due to increased distribution of CINNAMON RAISIN MINI'S and sales of an acquired business. SOFTSTIX sales decreased $228,000 to $582,000 or 28% in the second quarter and $460,000 or 29% in the six months. Sales of the flagship SUPERPRETZEL brand soft pretzels, excluding SOFTSTIX and CINNAMON RAISIN, decreased 9% in the second quarter and 6% for the six months. Sales of Italian ice increased $408,000 or 22% to $2,287,000 in the second quarter and $107,000 or 3% to $3,170,000 in the first half due to sales of Mama Tish International Foods, which was acquired during the second quarter. Excluding sales of Mama Tish, Italian ice sales were down 3% in the quarter and 12% in the first half. Frozen carbonated beverage and related product sales increased $135,000 or 2% to $9,013,000 in the second quarter and decreased $63,000 or less than 1% to $17,303,000 in the six months. Beverage and beverage cup and lid sales alone decreased 4% in both the second quarter and first half to $8,098,000 and $15,767,000, respectively. Excluding last year's unusually high level of promotional cup sales to one customer and a pricing adjustment, beverage and beverage cup and lid sales increased 16% for the second quarter and 5% for the six months. Bakery sales increased $1,951,000 or 93% to $4,055,000 in the second quarter and $2,942,000 or 80% to $6,624,000 in the first six months due to increased product sales to one customer. Sales of our Bavarian Pretzel Bakery increased 28% to $2,877,000 in the second quarter and 21% to $6,503,000 in the six month period due primarily to sales of an acquired business. Gross profit as a percentage of sales decreased to48 % in the current three and six month periods from 49% in the corresponding periods last year. This gross profit percentage decrease is primarily attributable to lower gross profit percentages of acquired businesses and the increased bakery sales. Total operating expenses increased $3,139,000 in the second quarter but as a percentage of sales decreased to 46% from 47% in last year's same quarter. For the first half, operating expenses increased $4,051,000 and as a percentage of sales were 47% in both year's period. Marketing expenses decreased to 31% of sales in this year's quarter from 32% last year and were 32% of sales in both six month periods. Distribution expenses decreased to 9% of sales in this year's second quarter from 10% of sales last year and 10 were 10% of sales this year and last for the six month period. The decrease in distribution expenses as a percent of sales in this year's second quarter resulted from a one time settlement with a freight carrier. Operating income increased $699,000 or 100% to $1,396,000 in the second quarter and $237,000 or 14% to $1,400,000 in the first half. Excluding a pricing adjustment to frozen carbonated beverage sales in last year's second quarter and a one time settlement with a freight carrier in this year's second quarter, operating income increased $874,000 in the second quarter and decreased $62,000 in the first half. Investment income decreased $224,000 to $141,000 in the second quarter and $380,000 to $396,000 in the six months due primarily to sharply lower levels of investable funds which were used to pay for acquisitions. Interest expense increased $31,000 and $24,000 in the quarter and six months, respectively due to increased borrowings. The effective income tax rate has been estimated at 37% in this year's periods compared to 35% in both periods last year. The increased rate is caused by a lower amount of tax free income in the current year. Net earnings increased $281,000 or 45% in the current three month period to $906,000 and decreased $435,000 or 30% in the current six month period to $1,017,000. 11 Part II. OTHER INFORMATION Item 1. Legal Proceedings In April 1997, a jury in Los Angeles, California returned a verdict against the Company for $1.7 million compensatory plus $2.5 million punitive damages in litigation brought by a former employee alleging same sex harassment by a Company supervisor. The Company has subsequently settled the case for an amount substantially less than the amount awarded. The Company believes it is likely it will recover its settlement costs from its insurance carrier who failed to settle the case within policy limits. Item 4. Submission of Matters to a Vote of Security Holders The results of voting at the Annual Meeting of Shareholders held on February 5, 1997 is as follows: Votes Cast Absentees and Matter For Against Withheld Broker Non Votes Election of Dennis G. Moore as Director 7,871,183 - 464,127 - Election of Robert M. Radano as Director 7,871,183 - 464,127 - Amendment to the Company's 1992 Stock Option Plan increasing the maximum number of shares issuable under the Plan by 500,000 shares to a total of 1,500,000 shares 4,753,700 1,929,241 270,700 1,381,669 The Company had 8,749,970 shares outstanding on December 9, 1996, the record date. Item 6. Exhibits and Reports on Form 8-K a) Exhibits - None b) Reports on Form 8-K - There were no reports on Form 8-K for the three months ended March 29, 1997. 12 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: May 8, 1997 /s/ Gerald B. Shreiber Gerald B. Shreiber President Dated: May 8, 1997 /s/ Dennis G. Moore Dennis G. Moore Senior Vice President and Chief Financial Officer 13 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: May 8, 1997 Gerald B. Shreiber President Dated: May 8, 1997 Dennis G. Moore Senior Vice President and Chief Financial Officer 13

5 1,000 3-MOS SEP-27-1997 MAR-29-1997 486 0 24640 (299) 14493 40556 155169 (90376) 132370 25403 5006 0 0 36099 61844 132370 93906 93906 48367 44139 0 0 215 1614 597 1017 0 0 0 1017 0.11 0.11