March 18,
2010
United
States
Securities
and Exchange Commission
Division
of Corporation Finance
100 F
Street, N.E.
Washington,
D.C. 20549
Attn: H.
Roger Schwall
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Re:
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J
& J Snack Foods Corp.
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Form
10-K for the Fiscal Year Ended September 26, 2009
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Filed
December 8, 2009
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Form
10-Q for the Fiscal Quarter Ended December 26, 2009
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Filed
January 21, 2010
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Schedule
14 A Definitive Proxy Statement
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Filed
December 22, 2009
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File No.
0-14616
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Dear Mr.
Schwall:
This is in response to your letter
dated February 26, 2010. Our responses are keyed to your
comments.
Schedule 14 A Definitive
Proxy Statement, filed December 22, 2009
General
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1.
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Please
confirm in writing that you will comply with the following comments in all
future filings, and provide us with an example of the disclosure you
intend to use in each case. After our review of your responses,
we may raise additional comments.
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Company
Response:
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We
confirm that we will comply with the following comments in all future
filings.
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Annual Cash Incentive, page
10
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2.
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We
note your disclosure that, in addition to the recommendation of the CEO
and the annual results of the Company, you reviewed the “published reports
of salaries and bonus given to CFO’s of 100 local Philadelphia companies”
when determining the amount of Mr. Moore’s annual cash
incentive. Related disclosure on page 9
states
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that
you strive to deliver competitive compensation as compared to companies
with whom you compete for executive talent and that your “Compensation
Committee reviews reports of compensation of 100 local Philadelphia
companies.” We further note your response letter to us dated
May 8, 2008, which stated that your Compensation Committee uses these
reports, with a “focus on companies with similar earnings and sales” as a
source of information when making compensation
decisions. Please identify the comparison group of companies
used when determining Mr. Moore’s annual cash incentive. Refer
to Item 402(b)(2)(xiv) of Regulation
S-K.
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Company
Response:
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The
Committee reviewed the information included in the Philadelphia Business
Journal report on the 100 largest public companies in the
region. The Committee did not use
this information to create any specific comparison groups or as a
benchmarking tool when determining any specific individual’s compensation,
including Mr. Moore.
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3.
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In
addition, disclose the actual percentile in comparison to this group of
companies with respect to the annual cash incentive paid to Mr.
Moore.
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Company
Response:
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See
our response to #2.
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Summary Compensation
Table, page 13
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4.
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Provide
summary compensation information for the last three completed
fiscal years. Refer to Item 402(c)(1) of
Regulation S-K.
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Company
Response:
The Company proposes to change its
disclosure going forward. The following disclosure illustrates the changes the
Company will make in its future filings (although we note that required
information has changed for future filings):
EXECUTIVE
COMPENSATION
SUMMARY
COMPENSATION TABLE
The following table summarizes
compensation paid or earned for the three fiscal years ending September 26, 2009
for the Company’s Chief Executive Officer, Chief Financial Officer and the three
other most highly compensated executive officers (the “Named Executive
Officers”).
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Name and Principal Position
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Year
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Salary
___$__
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Bonus
___$__
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Stock
Awards(1)
____$__
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Option
Awards
($)
(1)
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All
Other
Compensation
_____$_____
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Total
__$__
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Gerald
B. Shreiber
Chairman
of the
Board
Chief
Executive
Officer
Director
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2009
2008
2007
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700,000
675,000
650,000
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1,032,811
697,702
802,790
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0
0
0
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338,150
306,400
262,133
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13,886
13,038
11,098
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2,084,847
1,692,140
1,726,021
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Robert
M. Radano
Senior
Vice
President
Chief
Operating
Officer
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2009
2008
2007
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318,777
307,763
295,000
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150,000
100,000
100,000
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0
0
0
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20,279
26,223
39,710
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13,332
11,614
7,488
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502,388
445,600
442,198
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Dennis
G. Moore
Senior
Vice
President
Chief
Financial
Officer
Secretary
Treasurer
Director
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2009
2008
2007
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336,271
323,769
311,317
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220,000
185,000
185,000
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0
0
0
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20,279
26,223
39,710
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16,626
16,251
15,192
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593,176
551,243
551,219
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Daniel
Fachner
President
The
ICEE Company
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2009
2008
2007
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316,137
304,497
293,230
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273,482
261,446
276,200
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0
0
0
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20,279
26,223
39,710
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19,408
18,684
15,880
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629,306
610,850
625,020
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Vincent
Melchiorre
Executive
Vice
President
Food
Group
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2009
2008
2007
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300,243
288,860
88,000
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230,000
180,000
251,000
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133,178
163,334
50,256
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46,948
54,677
13,922
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13,890
8,218
1,912
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724,259
695,089
405,090
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----------------------------------
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(1)
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All
amounts reported in these columns correspond to amounts recorded for
financial statement purposes. For a discussion of 2009 valuation
assumptions, see Note A 13 to J & J’s Consolidated Financial
Statements included in J & J’s Annual Report on Form 10-K for the
fiscal year ended September 26,
2009.
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Form 10-K for the Fiscal
Year Ended September 26, 2009
Item
7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Critical Accounting
Policies, Judgments and Estimates, page 12
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5.
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Your
disclosure indicates that you recognize revenue from equipment service and
from equipment service contracts. Please clarify the nature of
each type of service that you provide to your customers and how you have
determined that your accounting policy for each type of service complies
with SAB Topic 13. In addition, please revise the discussion
within your business disclosure in Item 1 of your filing to disclose the
nature of the services that you provide to your
customers.
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Company
Response:
Service
provided is the repair and maintenance of customers’ equipment and can be billed
on a time and material basis or on a contract basis which provides for repair
and maintenance over a fixed period of time. With regard
to adherence to SAB Topic 13, revenue from billing on a time and material basis
is recorded when the service is performed and revenue from service contracts is
recorded on a straight line basis over the term of the contracts since service
is performed regularly over the term of the
contract.
The
Company proposes to change its disclosure going forward. Note that underlines below
and throughout these responses are for emphasis and are not intended to be
included in future filings. The following disclosure
illustrates the changes the Company will make in its future
filings:
Item 1
disclosure:
Under the
Company’s principal marketing program for frozen carbonated beverages, it
installs frozen beverage dispensers for its ICEE and ARCTIC BLAST brands at
customer locations and thereafter services the machines, arranges to supply
customers with ingredients required for production of the frozen beverages, and
supports customer retail sales efforts with in-store promotions and
point-of-sale materials. In most cases, the Company retains ownership
of its dispensers, and as a result, customers are not required to make an
investment in equipment or arrange for the ingredients
and supplies necessary to produce and market the frozen
beverages. The Company also provides
repair and maintenance service to customers for customers’ owned
equipment and sells equipment in its Frozen Beverages segment,
revenue from which amounted to 9% of sales in 2009, 9% of sales in 2008 and 8%
of the Company’s sales in fiscal year 2007. The Company sells frozen
uncarbonated beverages under the SLUSH PUPPIE brand through a distributor
network.
Critical Accounting
Polices, Judgments and Estimates Disclosure:
Revenue Recognition - 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. Off-invoice
allowances are deducted directly from the amount invoiced to our customer when
our products are shipped to the customer. Offsets to revenue for allowances,
end-user pricing adjustments and trade spending are recorded primarily as a
reduction of accounts receivable based on our estimates of liability which are
based on customer programs and historical experience. These offsets to revenue
are based primarily on the quantity of product purchased over specific time
periods. For our Retail Supermarket and Frozen Beverages segments, we
accrue for the liability based on products sold multiplied by per product
offsets. Offsets to revenue for our Food Service segment are calculated in a
similar manner for offsets owed to our direct customers; however, because
shipments to end-users are unknown to us until reported by our direct customers
or by the end-users, there is a greater degree of uncertainty as to the accuracy
of the amounts accrued for end-user offsets. Additional uncertainty
may occur as customers take deductions when they make payments to
us. This creates complexities because our customers do not always
provide reasons for the deductions taken. Additionally, customers may
take deductions to which they are not entitled and the length of time customers
take deductions to which they are entitled can vary from two weeks to well over
a year. Because of the
aforementioned uncertainties, the process to determine these estimates requires
judgment. We feel that due to constant monitoring of the process, including but
not limited to comparing actual results to estimates made on a monthly basis,
these estimates are reasonable in all material respects. Our recorded
liability for allowances, end-user pricing adjustments and trade spending was
approximately $14,000,000 and $12,090,000 at September 26, 2009 and September
27, 2008, respectively.
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6.
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We
note that you record offsets to revenue for allowances, end-user pricing
adjustments, trade spending, coupon redemption costs and returned
products. Please provide a detailed explanation of each
customer program that creates each of revenue offset that you have
disclosed, and provide your accounting policy for each individual
program.
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Company
Response:
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The Company does not have customer
programs which are general to all customers or groups of companies with
respect to revenue offsets. Allowances, end-user pricing adjustments
and trade spending are individually negotiated with each customer.
Coupon redemption costs are paid to a third party who manages coupon
redemption costs among many manufacturers and retailers. Returned
products are approved individually with each customer. Our
accounting policy is to estimate or record these offsets at the time of sale. We believe that our
current disclosure as
shown in our response to #5 as to accounting policies on this
subject is proper and
adequate.
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7.
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We
note your disclosure surrounding the uncertainty in estimating revenue in
your Food Service segment. Please clarify how you have
determined that your revenue is fixed or determinable and collectible upon
shipment when shipments to end users are unknown to you, customers take
deductions from the sales price when they pay you, and take deductions
that they are not contractually entitled to
take.
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Company
Response:
The Company proposes to change its
disclosure going forward. Please see our proposed changes to our
revenue recognition discussion at our response to #5.
Results of Operations, page
14
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8.
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Your
disclosure does not provide a discussion of the key indicators of
financial condition and operating performance that management uses to
analyze the short and long-term condition and results of the
business. Your MD&A discussion should “identify and address
those key variables and other quantitative and qualitative factors which
are peculiar to and necessary for an understanding and evaluation of the
individual company.” We refer you to Financial Reporting
Codification 501.12b.1. Therefore, please tell us the all the
significant key variables that management uses to manage the business,
both consolidated and by reportable segment, and revise your MD&A to
disclose those key variables.
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Company
Response:
The
Company proposes to change its disclosure going forward. The following
disclosure illustrates the changes the Company will make in its future
filings:
RESULTS
OF OPERATIONS
Fiscal
2009 (52 weeks) Compared to Fiscal 2008 (52 weeks)
Net sales
increased $23,688,000, or 4%, to $653,047,000 in fiscal 2009 from $629,359,000
in fiscal 2008.
We have
four reportable segments, as disclosed in the accompanying notes to the
consolidated financial statements: Food Service, Retail Supermarkets, The
Restaurant Group and Frozen Beverages.
The Chief
Operating Decision Maker for Food Service, Retail Supermarkets and The
Restaurant Group 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.
Food
Service
Sales to
food service customers increased $17,559,000, or 4%, to $417,753,000 in fiscal
2009. Soft pretzel sales to the food service market decreased
$313,000, or about 1/3 of one percent, to $99,471,000 for the
year. Unit sales of soft pretzels were down 3% for the year which is a continuation of a
multi-year trend of flat or modestly up or down sales. Sales
of bakery products excluding biscuit and dumpling sales and fruit and fig bar
sales, increased $6,607,000, or 4%, for the year. Biscuit and
dumpling sales were up 8% to $32,845,000 due to increased distribution and new
product offerings. Sales of fig and fruit bars increased 11% to
$29,497,000 due to strong volume growth spread across our customer
base. Churro sales were up 16% for the year with $29,404,000 of sales
in 2009 with over 80% of the sales increase coming from sales to one customer
who previously had not
been a purchaser of churros. Frozen juice bar and ices
sales decreased $934,000 or 2% to $50,272,000 for the year. Our sales of frozen juice
bar and ices to school foodservice have been impacted and we expect them to
continue to be impacted by nutritional concerns. Sales of our funnel cake
products were up $2,872,000, or 49%, with sales to one customer who previously had not been
a purchaser of funnel cake products
accounting for about one-half of the increase and sales of funnel cake
fries, a product introduced in the fourth quarter of fiscal 2008, accounting for
the balance. Sales of new products in the first twelve months since their
introduction were approximately $12,600,000 in fiscal year
2009. Price increases accounted for estimated sales of $13,700,000 in
fiscal year 2009 and net volume increases, including new product sales as
defined above, accounted for approximately $3,900,000 of sales in fiscal 2009.
Operating Income in our Food Service segment increased from $24,784,000 in 2008
to $45,024,000 in 2009 primarily as a result of price increases and increased
volume as discussed above and lower commodity costs of approximately
$10,000,000.
Retail
Supermarkets
Sales of
products to retail supermarkets increased $8,046,000
or 14% to $65,158,000 in fiscal 2009. Total soft pretzel sales to retail
supermarkets were $30,506,000, an increase of 11% from fiscal 2008, on a unit
volume decrease of 2%. Sales of frozen juice bars and ices increased
19% to $37,819,000 in 2009 on a case volume increase of
25%. Increased trade spending of $1.3 million for the introduction of
new frozen novelty items and a shift in product mix reduced sales dollars in
relation to the unit volume increases. Coupon redemption costs, a
reduction of sales, increased 38% or about $1,029,000 for the year as we increased couponing in
light of a trend toward increased use of coupons by shoppers. Sales of products
in the first twelve months since their introduction were approximately
$6,300,000 in fiscal year 2009. Price increases accounted for
estimated sales of $2,400,000 in fiscal year 2009 and net volume increases,
including new product sales as defined above and net of increased coupon costs,
accounted for approximately $5,600,000 of sales in fiscal
2009. Operating Income in our Retail Supermarkets segment increased
from $4,665,000 in 2008 to $7,442,000 in 2009 primarily as a result of price and
volume increases.
The
Restaurant Group
Sales of
our Restaurant Group, which operates BAVARIAN PRETZEL BAKERY and PRETZEL GOURMET
retail stores in the Mid-Atlantic region, declined by 23% primarily due to
closings or licensings of stores in the past year. At September 26,
2009, we had 4 stores open. Sales of stores open for both years were
down 7% for the year. Operating Loss in our
Restaurant Group segment decreased from $140,000 in 2008 to $64,000 in 2009
primarily resulting from a decline in store closing costs.
Frozen
Beverages
Frozen
beverage and related product sales decreased $1,539,000
or 1% to $168,879,000 in fiscal 2009. Beverage sales alone were down
1% for the year. Gallon sales were down 2% for the
year in our base ICEE business which is a continuation of a
multi-year trend. Service revenue increased $3,210,000, or 8%, to
$42,013,000 for the year as we continue to grow this part of our business to new and existing
customers. Frozen carbonated machine sales, which tend to fluctuate
from year to year while following no specific trend, decreased $2,834,000
to $10,004,000 for the year. The estimated number of
company owned frozen beverage dispensers was 38,700 and 36,400 at September 26,
2009 and September 27, 2008, respectively. Operating Income in our Frozen
Beverages segment increased from $14,027,000 in 2008 to $14,536,000 in
2009.
Consolidated
Other
than as commented upon above by segment, there are no material specific reasons
for the reported sales increases or decreases. Sales levels can be
impacted by the appeal of our products to our customers and consumers and their
changing tastes,
competitive and pricing pressures, sales execution, marketing
programs, seasonal weather, customer stability and general economic
conditions.
Gross
profit as a percent of sales increased 2.28 percentage points in 2009 from 2008
to 32%.
Lower
commodity costs in excess of $11,000,000 and higher pricing partially offset by
higher workers’ compensation and group health benefit expense were
the primary drivers causing the gross profit percentage increase. We presently expect
commodity costs to be lower on a year to year comparison basis over the next
several quarters; however, commodity costs can be extremely volatile and may be
significantly different from what we are presently expecting. As we
are self insured for most of our workers compensation costs and group health
benefit costs, they may go up or down without notice.
Total
operating expenses decreased $1,665,000 to $141,906,000 in fiscal
2009 and as a percentage of sales decreased 1.08 percentage
points to 22% of sales in 2009. Other general income was $5,000 this
year. Other general income of $375,000 last year primarily consisted
of gains on the disposition of assets and insurance gains in our Food Service
and Frozen Beverages segments offset by store closing costs in our Restaurant
Group segment of $102,000. Marketing expenses decreased .45
percentage points and remained at 11% of sales. Controlled spending
in our Food Service and Frozen Beverages segments accounted for the overall
decline. Distribution expenses decreased .75 of a percentage point
and remained at 8% of sales due to lower freight and fuel
costs. Administrative expenses were about 3-1/2% of sales in both
years.
Operating
income increased $23,602,000, or 54%, to $66,938,000 in fiscal 2009 as a result
of the aforementioned items.
Investment
income decreased by $1,279,000 to $1,386,000 due to the general decline in the
level of interest rates.
The
effective income tax rate was 39% in both fiscal years.
Net
earnings increased $13,404,000, or 48%, in fiscal 2009 to $41,312,000,
or $2.21 per diluted share 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.
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9.
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Your
disclosure within your Food Service results of operations discussion
states, “[t]he changes in sales throughout the Food Service Segment were
from a combination of volume changes and price increases.” This
disclosure does not comply with the disclosure requirement in Regulation
S-K, Rule 303(a)(3)(iii). Therefore, please revise to disclose
the extent to which increases in revenue in the Food Service
segment were attributable to increases in price, volume or the
introduction of new products and services. You should revise
your Retail Supermarkets results of operations discussion to provide
similar disclosure.
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Company
Response:
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See
our response to #8.
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10.
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You
provide disclosure about the current period increase or decrease in sales
of your various products within your Food Service, Retail Supermarkets and
Frozen Beverage segments. However, you have not provided an
analysis as to the reason(s) why the sales of the products have increased
or decreased in the current period or provided a discussion of any known
or expected trends that management has observed based upon the results of
your product sales. Please revise your discussion
accordingly. We refer to Financial Reporting Codification
501.12.b.4.
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Company
Response:
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See
our response to #8.
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11.
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In
addition to discussing the results of revenue by reportable segment,
provide a discussion of the results of operating income by
segment.
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| Company Response: | |
| See our response to #8. |
Consolidated Statements of
Earnings, page F-4
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12.
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Please
tell us what consideration you have given to separate presentation of
product and services revenue and related cost of revenue in your income
statements pursuant to Regulation S-X, Rules 5-03.1 and 2. As
part of your response, please quantify the amount of service revenue
recognized for each year reported.
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| Company Response: | |
| The amount of repair and maintenance service revenue recognized for each period is: | |
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2009
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$42,013,000
, or 6% , of consolidated net sales
of $653,047,000
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2008
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$38,803,000,
or 6% , of consolidated net sales
of $629,359,000
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2007
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$31,249,000,
or 5% , of consolidated net sales
of $568,901,000
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Since the
revenue is less than 10% of the total of product and services revenue, we have
not reported product and services revenue separately in accordance with
Regulation S-X, Rules 5-03.1 and 2.
Note O – Segment Reporting,
page F-23
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13.
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Please
revise to provide disclosure of your products and services pursuant to ASC
Topic 280-10-50-40.
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Company
Response:
We
note that products sold within our Food Service, Retail Supermarket and
Restaurant Group segments are similar products and sales of such are
appropriately disclosed in Note O pursuant to ASC Topic 280-10-50
40. However, proposed revisions to be made to Note O in future
filings relative to the Frozen Beverage segment are:
NOTE
O – SEGMENT REPORTING
Frozen
Beverages
We sell
frozen beverages and
related products to the food service industry, including our restaurant
group, primarily under the names ICEE, SLUSH PUPPIE and ARCTIC BLAST in the
United States, Mexico and Canada. We also provide repair and
maintenance service to customers for customers’ owned equipment, which revenue
was $42,013,000, $38,803,000 and $31,249,000 in fiscal years 2009, 2008 and
2007, respectively. Additionally, we sell frozen carbonated machines, which
revenue was $10,004,000, $12,838,000 and $13,778,000 in fiscal years 2009, 2008
and 2007, respectively.
Please review our responses and contact
me if you have any further questions or comments.
We
acknowledge that the Company is responsible for the adequacy and accuracy of
disclosures in our filings; that staff comments or changes to disclosures in
response to staff comments do not foreclose the Commission from taking any
action with respect to the filing; and the Company may not assert staff comments
as a defense in any proceeding initiated by the Commission or any person under
the federal securities laws of the United States.
Very
truly yours,
/s/ Dennis G.
Moore
Dennis G.
Moore
Senior
Vice President and Chief Financial Officer