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 June 28, 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 July 21, 1997, there were 8,831,128 shares of the Registrant's Common Stock outstanding.

INDEX Page Number Part I. Financial Information Item 1. Consolidated Financial Statements Consolidated Balance Sheets - June 28, 1997 and September 28, 1996................................. 3 Consolidated Statements of Earnings - Three Months and Nine Months Ended June 28, 1997 and June 29, 1996.. 5 Consolidated Statements of Cash Flows - Nine Months Ended June 28, 1997 and June 29, 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 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 June 28, September 28, 1997 1996 (Unaudited) Current assets Cash and cash equivalents $ 32,000 $ 10,547,000 Marketable securities available for sale - 1,217,000 Accounts receivable 29,596,000 18,202,000 Inventories 14,412,000 11,276,000 Prepaid expenses and deposits 763,000 980,000 44,803,000 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 51,841,000 41,158,000 Marketing equipment 87,350,000 81,144,000 Transportation equipment 1,817,000 1,754,000 Office equipment 4,535,000 3,727,000 Improvements 7,743,000 7,053,000 Construction in progress 2,187,000 1,326,000 161,411,000 142,100,000 Less accumulated depreciation and amortization 93,735,000 83,890,000 67,676,000 58,210,000 Other assets Goodwill, trademarks and rights, less accumulated amortization 20,347,000 9,326,000 Long term investment securities available for sale 495,000 990,000 Long term investment securities held to maturity 3,371,000 9,497,000 Sundry 2,824,000 2,883,000 27,037,000 22,696,000 $139,516,000 $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 June 28, September 28, STOCKHOLDERS' EQUITY 1997 1996 (Unaudited) Current liabilities Short-term borrowings $ 1,500,000 $ - Current maturities of long- term debt 8,000 8,000 Accounts payable 18,457,000 10,394,000 Accrued liabilities 9,225,000 7,038,000 29,190,000 17,440,000 Long-term debt, less current maturities 5,004,000 5,010,000 Deferred income 550,000 567,000 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, 8,797,000 and 8,749,000, respectively 36,374,000 35,818,000 Foreign currency translation adjustment (1,426,000) (1,356,000) Retained earnings 66,421,000 62,246,000 101,369,000 96,708,000 $139,516,000 $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 Nine months ended June 28, June 29, June 28, June 29, 1997 1996 1997 1996 Net Sales $63,448,000 $49,091,000 $157,354,000 $134,092,000 Cost of goods sold 32,404,000 24,805,000 80,771,000 68,081,000 Gross profit 31,044,000 24,286,000 76,583,000 66,011,000 Operating expenses Marketing 17,764,000 15,180,000 47,826,000 42,645,000 Distribution 5,263,000 4,439,000 14,380,000 12,923,000 Administrative 2,619,000 1,776,000 6,797,000 5,500,000 Amortization of intangibles and deferred costs 451,000 230,000 1,233,000 645,000 26,097,000 21,625,000 70,236,000 61,713,000 Operating income 4,947,000 2,661,000 6,347,000 4,298,000 Other income (deductions) Investment income 94,000 328,000 490,000 1,104,000 Interest expense (111,000) (89,000) (326,000) (280,000) Sundry 83,000 (30,000) 116,000 (26,000) Earnings before income taxes 5,013,000 2,870,000 6,627,000 5,096,000 Income taxes 1,855,000 1,020,000 2,452,000 1,794,000 NET EARNINGS $ 3,158,000 $ 1,850,000 $ 4,175,000 $ 3,302,000 Earnings per common share $ .35 $ .21 $ .47 $ .36 Weighted average number of shares 9,003,000 8,921,000 8,924,000 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) Nine months ended June 28, June 29, 1997 1996 Cash flows from operating activities: Net earnings $ 4,175,000 $ 3,302,000 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization of fixed assets 12,532,000 11,566,000 Amortization of intangibles and deferred costs 1,454,000 900,000 Gain from disposals of property & equipment (12,000) (17,000) Other adjustments 12,000 221,000 Changes in assets and liabilities Increase in accounts receivable (10,209,000) (495,000) Increase in inventories (1,803,000) (780,000) Decrease in prepaid expenses 264,000 559,000 Increase (decrease) in accounts payable and accrued liabilities 6,394,000 (1,621,000) Net cash provided by operating activities 12,807,000 13,635,000 Cash flows from investing activities: Purchases of property, plant and equipment (14,147,000) (10,214,000) Payments for purchase of companies, net of cash acquired and debt assumed (18,873,000) (2,637,000) Proceeds from investments held to maturity 6,116,000 410,000 Payments for investments held to maturity - (2,750,000) Proceeds from investments available for sale 1,710,000 4,152,000 Payments for investments available for sale - (4,393,000) Proceeds from sale of property and equipment 187,000 156,000 Other (205,000) (475,000) Net cash used in investing activities (25,212,000) (15,751,000) Cash flows from financing activities: Proceeds from short-term borrowing 1,500,000 - Proceeds from issuance of common stock 396,000 139,000 Payments to repurchase common stock - (4,149,000) Payments of long-term debt (6,000) (30,000) Net cash used in financing activities 1,890,000 (4,040,000) Net increase (decrease) in cash and cash equivalents (10,515,000) (6,156,000) Cash and cash equivalents at beginning of period 10,547,000 10,696,000 Cash and cash equivalents at end of period $ 32,000 $ 4,540,000 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 nine months ended June 28, 1997 and June 29, 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 are based on the weighted average number of common shares outstanding, including common stock equivalents (stock options). The Financial Accou nting St andards Board ("FASB") has issued a Statement of Financial Accounting Standard ("SFAS") No. 128, Earnings Per Share, which is effective for financial statements issued after Dec ember 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: June 28, September 28, 1997 1996 Finished goods $ 7,642,000 $ 5,534,000 Raw materials 1,839,000 1,387,000 Packaging materials 2,570,000 2,009,000 Equipment parts & other 2,361,000 2,346,000 $14,412,000 $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 June 28, 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 - 8,000 487,000 Municipal Government Securities - - - - $ 495,000 $12,000 $ 8,000 $ 499,000 Held to Maturity Securities Corporate Debt Securities $ 976,000 $ 1,000 $ - $ 977,000 Municipal Government Securities 1,895,000 3,000 29,000 1,869,000 Other 500,000 - - 500,000 $3,371,000 $ 4,000 $ 29,000 $3,346,000 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 current cash and marketable securities balances and cash expected to be provided by future operations are its primary sources of liquidity. The Company believes that these sources, along with its borrowing capacity, are sufficient to fund future growth and expansion. In the nine months ended June 28, 1997, the devaluation of the Mexican peso caused a reduction of $70,000 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 June 28, 1997 were $1,500,000. Results of Operations Net sales increased $14,357,000 or 29% to $63,448,000 for the three months and $23,262,000 or 17% to $157,354,000 for the nine months ended June 28, 1997 compared to the nine months ended June 29, 1996. Excluding sales of acquired businesses, net sales increased $7,025,000 or 14% for the three months and $9,269,000 or 7% for the nine months. Sales to food service customers increased $8,766,000 or 41% in the third quarter to $29,940,000 and $12,424,000 or 20% for the nine months. Excluding sales of acquired businesses, sales to food service customers increased $2,722,000 or 13% for the quarter and increased $1,985,000 or 3% for the nine months. Soft pretzel sales to the food service market increased 8% to $14,183,000 in the third quarter and 6% to $43,478,000 in the nine months. Excluding sales of acquired businesses, food service soft pretzel sales increased $134,000 or 1% in the third quarter and decreased $321,000 or 1% in the nine month period. Italian ice and frozen juice treat and dessert sales increased 160% to $11,363,000 in the three months and 100% to $20,530,000 in the nine months. Approximately 75% of the Italian ice and frozen juice and 9 dessert sales increase was from sales of acquired businesses. Churro sales to food service customers increased 9% to $2,807,000 in the third quarter and 2% to $7,655,000 in the nine months. Sales of products to retail supermarkets increased $644,000 or 6% to $11,105,000 in the third quarter and 7% to $28,847,000 in the nine months. Excluding sales of acquired businesses, sales to retail supermarkets were down 6% in the quarter and 3% for the nine months. Soft pretzel sales for the third quarter were down 2% and for the nine months were up 5% from last year to $4,898,000 and $18,870,000, respectively. SOFTSTIX sales decreased $67,000 or 17% to $337,000 in the third quarter and $527,000 or 26% in the nine months. Sales of the flagship SUPERPRETZEL brand soft pretzels, excluding SOFTSTIX and CINNAMON RAISIN, decreased 11% in the third quarter and 8% for the nine months. Sales of Italian ice increased $609,000 or 12% to $5,879,000 in the third quarter and $716,000 or 9% to $9,049,000 in the nine months 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 6% in the quarter and 8% in the nine months. Frozen carbonated beverage and related product sales increased $1,226,000 or 10% to $14,039,000 in the third quarter and $1,163,000 or 4% to $31,342,000 in the nine months. Beverage and beverage cup and lid sales alone increased 4% in the third quarter and decreased less than 1% in the nine months to $12,498,000 and $28,265,000, 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 4% for the nine months. Bakery sales increased $3,384,000 or 156% to $5,547,000 in the third quarter and $6,326,000 or 108% to $12,171,000 in the first nine months due to increased product sales to one customer. Sales of our Bavarian Pretzel Bakery increased 14% to $2,817,000 in the third quarter and 18% to $9,320,000 in the nine month period. Excluding sales of an acquired business, sales were up 11% in the third quarter and 8% in the nine months. Gross profit as a percentage of sales was 49% in all periods reported. Total operating expenses increased $4,472,000 in the third quarter and as a percentage of sales decreased to 41% from 44% in last year's same quarter. For the nine months, operating expenses increased $8,523,000 and as a percentage of sales decreased to 45% from 46% last year. Marketing expenses decreased to 28% of sales in this year's third quarter from 31% last year and to 30% of sales in the nine month period this year from 32% last year. Distribution expenses decreased to 8% of sales in this year's third quarter from 9% of sales last year and to 9% of sales in this year's nine month period from 10% in the year ago period. The declines in marketing and distribution 10 expenses as a percentage of sales were due primarily to overhead efficiencies resulting from higher sales levels. Administration expenses were 4% of sales in all periods. Operating income increased $2,286,000 or 86% to $4,947,000 in the third quarter and $2,049,000 or 48% to $6,347,000 in the nine months. Investment income decreased $234,000 or 71% in the third quarter and $614,000 or 56% in the nine months due to sharply lower levels of investable funds which were used to pay for acquisitions. Interest expense increased $22,000 and $46,000 in the quarter and nine months, respectively due to increased borrowings. The effective income tax rate has been estimated at 37% in this year's periods compared to 36% and 35% respectively in last year's third quarter and nine months. The increased rate is caused by a lower amount of tax free income in the current year. Net earnings increased $1,308,000 or 71% in the current three month period to $3,158,000 and $873,000 or 26% in the current nine month period to $4,175,000. 11 Part II. OTHER INFORMATION 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 June 28, 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: August 12, 1997 /s/ Gerald B. Shreiber Gerald B. Shreiber President Dated: August 12, 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: August 12, 1997 Gerald B. Shreiber President Dated: August 12, 1997 Dennis G. Moore Senior Vice President and Chief Financial Officer 13

5 1,000 3-MOS SEP-27-1997 JUN-28-1997 32 0 29958 (362) 14412 44803 161411 (93735) 139516 29190 5004 0 0 36374 64995 139516 157354 157354 80771 70236 0 0 326 6627 2452 4175 0 0 0 4175 0.47 0.47