J&J SNACK FOODS CORP - Annual Report: 2008 (Form 10-K)

jjsnackfoods_10k-092708.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 27, 2008

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________________ TO _________________

Commission File No. 0-14616

J & J SNACK FOODS CORP.

(Exact name of registrant as specified in its charter)

	New Jersey		22-1935537
	(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

	6000 Central Highway, Pennsauken, New Jersey		08109
	(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (856) 665-9533

Securities Registered Pursuant to Section 12(b) of the Act: Common Stock, no par value

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No x

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 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. Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

	Large accelerated filer ¨	Accelerated filer x
	Non-accelerated filer ¨	Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of November 17, 2008, the latest practicable date, 18,339,980 shares of the Registrant’s common stock were issued and outstanding. The aggregate market value of shares held by non-affiliates of the Registrant on such date was $384,345,953 based on the last sale price on March 28, 2008 of $27.08 per share. March 28, 2008 was the last business day of the registrant’s most recently completed second fiscal quarter.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement for its Annual Meeting of Shareholders scheduled for February 12, 2009 are incorporated by reference into Part III of this report.

J & J SNACK FOODS CORP.

2008 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

		Page
PART I

Item 1	Business	1
Item 1A	Risk Factors	6
Item 1B	Unresolved Staff Comments	8
Item 2	Properties	8
Item 3	Legal Proceedings	9
Item 4	Submission Of Matters To A Vote Of Security Holders	9

PART II

Item 5	Market For Registrant’s Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities	10
Item 6	Selected Financial Data	11
Item 7	Management’s Discussion And Analysis Of Financial Condition And Results Of Operations	12
Item 7A	Quantitative And Qualitative Disclosures About Market Risk	21
Item 8	Financial Statements And Supplementary Data	21
Item 9	Changes In And Disagreements With Accountants On Accounting And Financial Disclosure	21
Item 9A	Controls and Procedures	21
Item 9B	Other Information	22

PART III

Item 10	Directors, Executive Officers and Corporate Governance	23
Item 11	Executive Compensation	23
Item 12	Security Ownership Of Certain Beneficial Owners And Management And Related Stockholder Matters	24
Item 13	Certain Relationships And Related Transactions, and Director Independence	24
Item 14	Principal Accountant Fees and Services	24

PART IV

Item 15	Exhibits, Financial Statement Schedules	24

In addition to historical information, this document and analysis contains forward-looking statements. The forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. Important factors that might cause such a difference include, but are not limited to, those discussed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after the date hereof.

PART I

Item 1. Business

General

J & J Snack Foods Corp. (the “Company” or “J & J”) manufactures nutritional snack foods and distributes frozen beverages which it markets nationally to the food service and retail supermarket industries. The Company’s principal snack food products are soft pretzels marketed primarily under the brand name SUPERPRETZEL and frozen juice treats and desserts marketed primarily under the LUIGI’S, FRUIT–A-FREEZE, WHOLE FRUIT, ICEE, BARQ’S* and MINUTE MAID** brand names. J & J believes it is the largest manufacturer of soft pretzels in the United States, Mexico and Canada. Other snack food products include churros (an Hispanic pastry), funnel cake and bakery products. The Company’s principal frozen beverage products are the ICEE brand frozen carbonated beverage and the SLUSH PUPPIE brand frozen uncarbonated beverage.

The Company’s Food Service and Frozen Beverages sales are made primarily to food service customers including snack bar and food stand locations in leading chain, department, discount, warehouse club and convenience stores; malls and shopping centers; fast food outlets; stadiums and sports arenas; leisure and theme parks; movie theatres; independent retailers; and schools, colleges and other institutions. The Company’s retail supermarket customers are primarily supermarket chains. The Company’s restaurant group sells direct to the public through its chains of specialty snack food retail outlets, BAVARIAN PRETZEL BAKERY and PRETZEL GOURMET, located primarily in the Mid-Atlantic States.

The Company was incorporated in 1971 under the laws of the State of New Jersey.

The Company made no material acquisitions in fiscal year 2008 but has made material acquisitions in prior years as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes thereto.

The Company operates in four business segments: Food Service, Retail Supermarkets, The Restaurant Group and Frozen Beverages. These segments are described below.

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 and evaluate operating income and sales 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 (see Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8 — Financial Statements and Supplementary Data for financial information about segments).

Food Service

The primary products sold by the food service segment are soft pretzels, frozen juice treats and desserts, churros and baked goods. Our customers in the food service segment 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 industry 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, FRUIT-A-FREEZE frozen fruit bars, WHOLE FRUIT Sorbet, BARQ’S FLOATZ and ICEE Squeeze-Up Tubes and TIO PEPE’S Churros. Within the retail supermarket industry, our frozen and prepackaged products are purchased by the consumer for consumption at home.

*BARQ’S is a registered trademark of Barq’s Inc.

**MINUTE MAID is a registered trademark of the Coca-Cola Company

The Restaurant Group

We sell direct to the public through our Restaurant Group, which operates BAVARIAN PRETZEL BAKERY and PRETZEL GOURMET, our chain of specialty snack food retail outlets.

Frozen Beverages

We sell frozen beverages to the food service industry primarily under the names ICEE, SLUSH PUPPIE and ARCTIC BLAST in the United States, Mexico and Canada.

Products

Soft Pretzels

The Company’s soft pretzels are sold under many brand names; some of which are: SUPERPRETZEL, PRETZEL FILLERS, PRETZELFILS, GOURMET TWISTS, MR. TWISTER, SOFT PRETZEL BITES, SOFTSTIX, SOFT PRETZEL BUNS, HOT KNOTS, DUTCH TWIST, TEXAS TWIST, SANDWICH TWIST, CINNAPRETZEL* and SERIOUSLY TWISTED!; and, to a lesser extent, under private labels. Soft pretzels are sold in the Food Service, Retail Supermarket and The Restaurant Group segments. Soft pretzel sales amounted to 20% of the Company’s revenue in fiscal year 2008, 22% in 2007, and 24% in 2006.

The Company’s soft pretzels qualify under USDA regulations as the nutritional equivalent of bread for purposes of the USDA school lunch program, thereby enabling a participating school to obtain partial reimbursement of the cost of the Company’s soft pretzels from the USDA.

The Company’s soft pretzels are manufactured according to a proprietary formula. Soft pretzels, ranging in size from one to ten ounces in weight, are shaped and formed by the Company’s proprietary twister machines. These soft pretzel tying machines are automated, high-speed machines for twisting dough into the traditional pretzel shape. Additionally, we make soft pretzels which are extruded or shaped by hand. Soft pretzels, after processing, are primarily quick-frozen in either raw or baked form and packaged for delivery.

The Company’s principal marketing program in the Food Service segment includes supplying ovens, mobile merchandisers, display cases, warmers and similar merchandising equipment to the retailer to prepare and promote the sale of soft pretzels. Some of this equipment is proprietary, including combination warmer and display cases that reconstitute frozen soft pretzels while displaying them, thus eliminating the need for an oven. The Company retains ownership of the equipment placed in customer locations, and as a result, customers are not required to make an investment in equipment.

Frozen Juice Treats and Desserts

The Company’s frozen juice treats and desserts are marketed primarily under the LUIGI’S, FRUIT-A-FREEZE, WHOLE FRUIT, ICEE, BARQ’S and MINUTE MAID brand names. Frozen juice treats and desserts are sold in the Food Service and Retail Supermarkets segments. Frozen juice treats and dessert sales were 13% of the Company’s revenue in fiscal year 2008 and 14% in 2007 and 2006.

The Company’s MINUTE MAID frozen juice fruit bars are manufactured from an apple or pear juice base to which water, sweeteners, coloring (in some cases) and flavorings are added. The juice bars contain two to three ounces of apple or pear juice and the minimum daily requirement of vitamin C, and qualify as reimbursable items under the USDA school lunch program. The juice bars are produced in various flavors and are packaged in a sealed push-up paper container referred to as the Milliken M-pak, which the Company believes has certain sanitary and safety advantages.

The balance of the Company’s frozen juice treats and desserts products are manufactured from water, sweeteners and fruit juice concentrates in various flavors and packaging including cups, tubes, sticks, M-paks, pints and tubs. Several of the products contain ice cream and FRUIT-A-FREEZE and WHOLE FRUIT contain pieces of fruit.

*CINNAPRETZEL is a registered trademark of Cinnabon, Inc.

Churros

The Company’s churros are sold primarily under the LA CHURROS and TIO PEPE’S brand names. Churros are sold to the Food Service and Retail Supermarkets segments. Churro sales were 4% of the Company’s sales in fiscal year 2008, 4% in 2007 and 4% in 2006. Churros are Hispanic pastries in stick form which the Company produces in several sizes according to a proprietary formula. The churros are deep fried, frozen and packaged. At food service point-of-sale they are reheated and topped with a cinnamon sugar mixture. The Company also sells fruit and crème-filled churros. The Company supplies churro merchandising equipment similar to that used for its soft pretzels.

Bakery Products

The Company’s bakery products are marketed under the MRS. GOODCOOKIE, CAMDEN CREEK BAKERY, READI-BAKE, COUNTRY HOME, MARY B’S, DADDY RAY’S and PRETZEL COOKIE brand names, and under private labels. Bakery products include primarily biscuits, fig and fruit bars, cookies, muffins and donuts. In 2007, biscuits and dumplings under the MARY B’S name and fruit and fig bars, under the DADDY RAY’S name, were added through acquisitions. Bakery products are sold to the Food Service segment. Bakery products sales amounted to 35% of the Company’s sales in fiscal year 2008, 32% in 2007 and 28% in 2006.

Frozen Beverages

The Company markets frozen beverages primarily under the names ICEE, SLUSH PUPPIE and ARCTIC BLAST in the United States, Mexico and Canada. Additional frozen beverages are JAVA FREEZE and CALIFORNIA NATURAL. Frozen beverages are sold in The Restaurant Group and Frozen Beverages segments. Frozen beverage sales amounted to 18% of revenue in fiscal in 2008 and 19% in 2007 and 2006.

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. In fiscal 1999, the Company began providing installation and maintenance service only to a large, quick-service restaurant and others, which resulted in the increase of customer-owned beverage dispensers beginning in 1999. The Company also provides managed service and sells equipment in its Frozen Beverages segment, revenue from which amounted to 9% of sales in 2008, 8% of sales in 2007 and 9% of the Company’s sales in fiscal year 2006. In fiscal 2006, through an acquisition, the Company began to sell frozen uncarbonated beverages under the SLUSH PUPPIE brand through a distributor network.

Each new frozen carbonated customer location requires a frozen beverage dispenser supplied by the Company or by the customer. Company-supplied frozen carbonated dispensers are purchased from outside vendors, built new or rebuilt by the Company.

The Company provides managed service and/or products to approximately 83,000 Company-owned and customer-owned dispensers.

The Company has the rights to market and distribute frozen beverages under the name ICEE to the entire continental United States (except for portions of nine states) as well as internationally.

Other Products

Other products sold by the Company include soft drinks, funnel cakes sold under the FUNNEL CAKE FACTORY brand name and smaller amounts of various other food products. These products are sold in the Food Service, The Restaurant Group and Frozen Beverages segments.

Customers

The Company sells its products to two principal customer groups: food service and retail supermarkets. The primary products sold to the food service group are soft pretzels, frozen beverages, frozen juice treats and desserts, churros and baked goods. The primary products sold to the retail supermarket industry are soft pretzels and frozen juice treats and desserts. Additionally, the Company sells soft pretzels, frozen beverages and various other food products direct to the public through its restaurant group, which operates BAVARIAN PRETZEL BAKERY and PRETZEL GOURMET, our chain of specialty snack food retail outlets.

We have several large customers that account for a significant portion of our sales. Our top ten customers accounted for 42%, 42% and 45% of our sales during fiscal years 2008, 2007 and 2006, respectively, with our largest customer accounting for 9% of our sales in 2008 and 8% in 2007 and 2006. Three of the ten customers are food distributors who sell our product to many end users. The loss of one or more of our large customers could adversely affect our results of operations. These customers typically do not enter into long-term contracts and make purchase decisions based on a combination of price, product quality, consumer demand and customer service performance. If our sales to one or more of these customers are reduced, this reduction may adversely affect our business. If receivables from one or more of these customers become uncollectible, our operating income would be adversely impacted.

The Food Service, The Restaurant Group and the Frozen Beverages segments sell primarily to the food service industry. The Retail Supermarkets segment sells to the retail supermarket industry.

The Company’s customers in the food service segment include snack bars and food stands in chain, department and mass merchandising 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, and independent retailers. Machines and machine parts are sold to other food and beverage companies. Within the food service industry, the Company’s products are purchased by the consumer primarily for consumption at the point-of-sale.

The Company sells its products to over 90% of supermarkets in the United States. Products sold to retail supermarket customers are primarily soft pretzel products, including SUPERPRETZEL, frozen juice treats and desserts including LUIGI’S Real Italian Ice, MINUTE MAID Juice Bars and Soft Frozen Lemonade, FRUIT-A-FREEZE frozen fruit bars, WHOLE FRUIT Sorbet, MARY B’S biscuits, DADDY RAY’S fig and fruit bars, BARQ’S FLOATZ and ICEE Squeeze-Up Tubes and TIO PEPE’S Churros. Within the retail supermarket industry, the Company’s frozen and prepackaged products are purchased by the consumer for consumption at home.

Marketing and Distribution

The Company has developed a national marketing program for its products. For Food Service and Frozen Beverages segments’ customers, this marketing program includes providing ovens, mobile merchandisers, display cases, warmers, frozen beverage dispensers and other merchandising equipment for the individual customer’s requirements and point-of-sale materials as well as participating in trade shows and in-store demonstrations. The Company’s ongoing advertising and promotional campaigns for its Retail Supermarket segment’s products include trade shows, newspaper advertisements with coupons, in-store demonstrations and consumer advertising campaigns.

The Company develops and introduces new products on a routine basis. The Company evaluates the success of new product introductions on the basis of sales levels, which are reviewed no less frequently than monthly by the Company’s Chief Operating Decision Makers.

The Company’s products are sold through a network of about 200 food brokers and over 1,000 independent sales distributors and the Company’s own direct sales force. For its snack food products, the Company maintains warehouse and distribution facilities in Pennsauken, Bellmawr and Bridgeport, New Jersey; Vernon (Los Angeles), California; Scranton, Pittsburgh, Hatfield and Lancaster, Pennsylvania; Carrollton (Dallas), Texas; Atlanta, Georgia; Moscow Mills (St. Louis), Missouri; and Solon, Ohio. Frozen beverages are distributed from 110 Company managed warehouse and distribution facilities located in 44 states, Mexico and Canada, which allow the Company to directly service its customers in the surrounding areas. The Company’s products are shipped in refrigerated and other vehicles from the Company’s manufacturing and warehouse facilities on a fleet of Company operated tractor-trailers, trucks and vans, as well as by independent carriers.

Seasonality

The Company’s sales are seasonal because frozen beverage sales and frozen juice treats and desserts sales are generally higher during the warmer months.

Trademarks and Patents

The Company has numerous trademarks, the most important of which are SUPERPRETZEL, DUTCH TWIST, TEXAS TWIST, MR. TWISTER, SOFT PRETZEL BITES, SOFTSTIX, PRETZEL FILLERS and PRETZELFILS for its pretzel products; FROSTAR, SHAPE-UPS, MAMA TISH’S, FRUIT-A-FREEZE, WHOLE FRUIT and LUIGI’S for its frozen juice treats and desserts; LA CHURROS and TIO PEPE’S for its churros; ARCTIC BLAST and SLUSH PUPPIE for its frozen beverages; FUNNEL CAKE FACTORY for its funnel cake products, and MRS. GOODCOOKIE, READI-BAKE, COUNTRY HOME, CAMDEN CREEK, MARY B’S and DADDY RAY’S for its bakery products.

The trademarks, when renewed and continuously used, have an indefinite term and are considered important to the Company as a means of identifying its products.

The Company markets frozen beverages under the trademark ICEE in all of the continental United States, except for portions of nine states, and in Mexico and Canada. Additionally, the Company has the international rights to the trademark ICEE.

The Company considers its trademarks important to the success of its business.

The Company has numerous patents related to the manufacturing and marketing of its product.

Supplies

The Company’s manufactured products are produced from raw materials which are readily available from numerous sources. With the exception of the Company’s soft pretzel twisting equipment and funnel cake production equipment, which are made for J & J by independent third parties, and certain specialized packaging equipment, the Company’s manufacturing equipment is readily available from various sources. Syrup for frozen beverages is purchased from The Coca-Cola Company, Dr Pepper/Seven Up, Inc., the Pepsi Cola Company, and Jogue, Inc. Cups, straws and lids are readily available from various suppliers. Parts for frozen beverage dispensing machines are purchased from several sources. Frozen beverage dispensers are purchased primarily from IMI Cornelius, Inc. and Lancer FBD.

Competition

Snack food and bakery products markets are highly competitive. The Company’s principal products compete against similar and different food products manufactured and sold by numerous other companies, some of which are substantially larger and have greater resources than the Company. As the soft pretzel, frozen juice treat and dessert, bakery products and related markets grow, additional competitors and new competing products may enter the markets. Competitive factors in these markets include product quality, customer service, taste, price, identity and brand name awareness, method of distribution and sales promotions.

The Company believes it is the only national distributor of soft pretzels. However, there are numerous regional and local manufacturers of food service and retail supermarket soft pretzels as well as several chains of retail pretzel stores.

In Frozen Beverages the Company competes directly with other frozen beverage companies. These include several companies which have the right to use the ICEE name in portions of nine states. There are many other regional frozen beverage competitors throughout the country and one large retail chain which uses its own frozen beverage brand.

The Company competes with large soft drink manufacturers for counter and floor space for its frozen beverage dispensing machines at retail locations and with products which are more widely known than the ICEE, SLUSH PUPPIE and ARCTIC BLAST frozen beverages.

The Company competes with a number of other companies in the frozen juice treat and dessert and bakery products markets.

Risks Associated with Foreign Operations

Foreign operations generally involve greater risk than doing business in the United States. Foreign economies differ favorably or unfavorably from the United States’ economy in such respects as the level of inflation and debt, which may result in fluctuations in the value of the country’s currency and real property. Further, there may be less government regulation in various countries, and difficulty in enforcing legal rights outside the United States. Additionally, in some foreign countries, there is the possibility of expropriation or confiscatory taxation limitations on the removal of property or other assets, political or social instability or diplomatic developments which could affect the operations and assets of U.S. companies doing business in that country. Sales of our foreign operations were $11,078,000, $9,785,000 and $7,889,000 in fiscal years 2008, 2007 and 2006, respectively. At September 27, 2008, the total assets of our foreign operations were approximately $8.6 million or 2% of total assets.

Employees

The Company has approximately 2,800 full- and part-time employees as of September 27, 2008. Certain production and distribution employees at the Pennsauken and Bridgeport, New Jersey plants are covered by a collective bargaining agreement which expires in September 2009.

The production employees at our Atlanta, Georgia plant are covered by a collective bargaining agreement which expires in January 2011. The Company considers its employee relations to be good.

Available Information

The Company’s internet address is www.jjsnack.com. On the investor relations section of its website, the Company provides free access to its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to these reports, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”). The information on the website listed above is not and should not be considered part of this annual report on Form 10-K and is not incorporated by reference in this document.

Item 1A. Risk Factors

You should carefully consider the risks described below, together with all of the other information included in this report, in considering our business and prospects. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties not presently known to us or that we currently deem insignificant may also impair our business operations. Following is a discussion of known potentially significant risks which could result in harm to our business, financial condition or results of operations.

Risks of Shortages or Increased Cost of Raw Materials

We are exposed to the market risks arising from adverse changes in commodity prices, affecting the cost of our raw materials and energy. The raw materials and energy which we use for the production and distribution of our products are largely commodities that are subject to price volatility and fluctuations in availability caused by changes in global supply and demand, weather conditions, agricultural uncertainty or governmental controls. We purchase these materials and energy mainly in the open market. If commodity price changes result in increases in raw materials and energy costs, we may not be able to increase our prices to offset these increased costs without suffering reduced volume, revenue and operating income.

General Risks of the Food Industry

Food processors are subject to the risks of adverse changes in general economic conditions; evolving consumer preferences and nutritional and health-related concerns; changes in food distribution channels; federal, state and local food processing controls or other mandates; consumer product liability claims; and risks of product tampering. The increased buying power of large supermarket chains, other retail outlets and wholesale food vendors could result in greater resistance to price increases and could alter the pattern of customer inventory levels and access to shelf space.

Environmental Risks

The disposal of solid and liquid waste material resulting from the preparation and processing of foods are subject to various federal, state and local laws and regulations relating to the protection of the environment. Such laws and regulations have an important effect on the food processing industry as a whole, requiring substantially all firms in the industry to incur material expenditures for modification of existing processing facilities and for construction of upgraded or new waste treatment facilities.

We cannot predict what environmental legislation or regulations will be enacted in the future, how existing or future laws or regulations will be administered or interpreted or what environmental conditions may be found to exist. Enactment of more stringent laws or regulations or more strict interpretation of existing laws and regulations may require additional expenditures by us, some of which could be material.

Risks Resulting from Several Large Customers

Competition

Our businesses operate in highly competitive markets. We compete against national and regional manufacturers and distributors on the basis of price, quality, product variety and effective distribution. Many of our major competitors in the market are larger and have greater financial and marketing resources than we do. Increased competition and anticipated actions by our competitors could lead to downward pressure on prices and/or a decline in our market share, either of which could adversely affect our results. See “Competition” in Item 1 for more information about our competitors.

Risks Relating to Manufacturing

Our ability to purchase, manufacture and distribute products is critical to our success. Damage or disruption to our manufacturing or distribution capabilities due to weather, natural disaster, fire or explosion, terrorism, pandemic, political upheaval, strikes or other reasons could impair our ability to manufacture or distribute our products.

Our Certificate of Incorporation may inhibit a change in control that you may favor

Our Certificate of Incorporation contains provisions that may delay, deter or inhibit a future acquisition of J & J Snack Foods Corp. not approved by our Board of Directors. This could occur even if our shareholders are offered an attractive value for their shares or if a substantial number or even a majority of our shareholders believe the takeover is in their best interest. These provisions are intended to encourage any person interested in acquiring us to negotiate with and obtain the approval of our Board of Directors in connection with the transaction. Provisions that could delay, deter or inhibit a future acquisition include the following:

—	a classified Board of Directors;
—	the requirement that our shareholders may only remove Directors for cause;
—	limitations on share holdings and voting of certain persons;
—	special Director voting rights; and
—	the ability of the Board of Directors to consider the interests of various constituencies, including our employees, customers, suppliers, creditors and the local communities in which we operate.

Risks Relating to the Control by Gerald B. Shreiber

Gerald B. Shreiber is the founder of the Company and the current beneficial owner of 22% of its outstanding stock. Our Certificate of Incorporation provides that he has three votes on the Board of Directors (subject to certain adjustments). Therefore, he and one other director have voting control of the Board. The performance of this Company is greatly impacted by his leadership and decisions. His voting control reduces the restrictions on his actions. His retirement, disability or death will have a significant impact on our future operations.

Risk Related to Product Changes

There are risks in the marketplace related to trade and consumer acceptance of product improvements, packing initiatives and new product introductions.

Risks Related to Change in the Business

Our ability to successfully manage changes to our business processes, including selling, distribution, product capacity, information management systems and the integration of acquisitions, will directly affect our results of operations.

Risks Associated with Foreign Operations

Foreign operations generally involve greater risk than doing business in the United States. Foreign economies differ favorably or unfavorably from the United States’ economy in such respects as the level of inflation and debt, which may result in fluctuations in the value of the country’s currency and real property. Further, there may be less government regulation in various countries, and difficulty in enforcing legal rights outside the United States. Additionally, in some foreign countries, there is the possibility of expropriation or confiscatory taxation limitations on the removal of property or other assets, political or social instability or diplomatic developments which could affect the operations and assets of U.S. companies doing business in that country. Sales of our foreign operations were $11,078,000, $9,785,000, and $7,889,000 in fiscal years 2008, 2007 and 2006, respectively. At September 27, 2008, the total assets of our foreign operations were approximately $8.6 million or 2% of total assets.

Seasonality and Quarterly Fluctuations

Our sales are affected by the seasonal demand for our products. Demand is greater during the summer months primarily as a result of the warm weather demand for our ICEE and frozen juice treats and desserts products. Because of seasonal fluctuations, there can be no assurance that the results of any particular quarter will be indicative of results for the full year or for future years.

Item 1B. Unresolved Staff Comments

We have no unresolved SEC staff comments to report.

Item 2. Properties

The Company’s primary east coast manufacturing facility is located in Pennsauken, New Jersey in a 70,000 square foot building on a two-acre lot. Soft pretzels are manufactured at this Company-owned facility which also serves as the Company’s corporate headquarters. This facility operates at approximately 70% of capacity. The Company leases a 101,200 square foot building adjacent to its manufacturing facility in Pennsauken, New Jersey through March 2012. The Company has constructed a large freezer within this facility for warehousing and distribution purposes. The warehouse has a utilization rate of 80-90% depending on product demand. The Company also leases, through September 2011, 16,000 square feet of office and warehouse space located next to the Pennsauken, New Jersey plant. The Company leases through January 2011 an additional 23,000 square feet of warehouse space several blocks distant from these facilities.

The Company owns a 150,000 square foot building on eight acres in Bellmawr, New Jersey. The facility is used by the Company to manufacture some of its products including funnel cake, pretzels, churros and cookies. The facility operates at about 50% of capacity.

The Company’s primary west coast manufacturing facility is located in Vernon (Los Angeles), California. It consists of a 137,000 square foot facility in which soft pretzels, churros and various lines of baked goods are produced and warehoused. Included in the 137,000 square foot facility is a 30,000 square foot freezer used for warehousing and distribution purposes which was constructed in 1996. The facility is leased through November 2017. The Company leases an additional 45,000 square feet of office and warehouse space, adjacent to its manufacturing facility, through November 2017. The manufacturing facility operates at approximately 60% of capacity.

The Company leases through November 2017 a 25,000 square foot frozen juice treat and dessert manufacturing facility located in Norwalk (Los Angeles), California which operates at approximately 20% of capacity.

The Company leases an 85,000 square foot bakery manufacturing facility located in Atlanta, Georgia. The lease runs through December 2010. The facility operates at about 50% of capacity.

The Company owns a 46,000 square foot frozen juice treat and dessert manufacturing facility and a 42,000 square foot dry storage warehouse located on six acres in Scranton, Pennsylvania. The manufacturing facility, which was expanded from 26,000 square feet in 1998, operates at approximately 60% of capacity.

The Company leases a 29,600 square foot soft pretzel manufacturing facility located in Hatfield, Pennsylvania. The lease runs through June 2017. The facility operates at approximately 65% of capacity.

The Company leases a 19,200 square foot soft pretzel manufacturing facility located in Carrollton, Texas. The lease runs through April 2016. The facility operates at approximately 60% of capacity. The Company leases an additional property containing a 6,500 square foot storage freezer across the street from the manufacturing facility, which lease expires May 2016.

The Company leases an 18,000 square foot soft pretzel manufacturing facility located in Chambersburg, Pennsylvania. The lease runs through September 2010 with options to extend the term. The facility operates at approximately 50% of capacity.

The Company’s fresh bakery products manufacturing facility and offices are located in Bridgeport, New Jersey in three buildings totaling 133,000 square feet. The buildings are leased through December 2015. The manufacturing facility operates at approximately 50% of capacity.

The Company owns a 65,000 square foot fig and fruit bar manufacturing facility located on 91⁄2 acres in Moscow Mills (St. Louis), Missouri. The facility operates at about 70% of capacity.

The Company leases a building in Pensacola, Florida for the manufacturing, packing and warehousing of dumplings. The building is approximately 14,000 square feet and the lease runs through December 2010. The manufacturing facility operates at approximately 70% of capacity.

The Company’s Bavarian Pretzel Bakery headquarters and warehouse and distribution facilities are owned and located in an 11,000 square foot building in Lancaster, Pennsylvania.

The Company also leases approximately 135 warehouse and distribution facilities in 44 states, Mexico and Canada.

Item 3. Legal Proceedings

The Company has no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Company or any of its subsidiaries is a party or of which any of their property is subject.

Item 4. Submission Of Matters To A Vote Of Security Holders

There were no matters submitted to a vote of the security holders during the quarter ended September 27, 2008.

PART II

Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities

The Company’s common stock is traded on the NASDAQ Global Select Market under the symbol “JJSF.” The following table sets forth the high and low sale price quotations as reported by NASDAQ and dividend information for the common stock for each quarter of the years ended September 29, 2007 and September 27, 2008.

Common Stock Market Price

	High		Low		Dividend Declared
Fiscal 2007
First quarter	$	42.27	$	30.76	$	.085
Second quarter		43.51		37.41		.085
Third quarter		41.95		37.16		.085
Fourth quarter		40.14		33.23		.085

Fiscal 2008
First quarter	$	38.76	$	29.01	$	.0925
Second quarter		31.85		23.38		.0925
Third quarter		29.97		26.74		.0925
Fourth quarter		36.07		27.00		.0925

As of November 20, 2008, there about 3,700 beneficial shareholders.

In our 2008 fiscal year, we purchased and retired 135,124 shares of our common stock at a cost of $3,539,000 under a million share buyback authorization approved by the Company’s Board of Directors in February 2008 leaving 864,876 as the number of shares that may yet be purchased under the share buyback authorization. No shares were repurchased in the fourth quarter of the year. The Company did not repurchase any of its common stock in fiscal years 2007 and 2006.

Subsequent to September 27, 2008 and prior to the filing of this Form 10-K, we purchased and retired 400,000 shares of our common stock at a purchase price of $27.90 per share from Gerald B. Shreiber, Chairman of the Board, President, Chief Executive Officer and Director of the Company.

For information on the Company’s Equity Compensation Plans, please see Item 12 herein.

Stock Performance Graph

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

Among J & J Snack Foods Corp., The NASDAQ Composite Index

And The S&P Packaged Foods & Meats Index

*$100 invested on 9/30/03 in stock & index-including reinvestment of dividends.

Fiscal year ending September 30.

Item 6. Selected Financial Data

The selected financial data for the last five years was derived from our audited consolidated financial statements. The following selected financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes thereto, especially as the information pertains to fiscal 2006, 2007 and 2008.

	Fiscal year ended in September (In thousands except per share data)
	2008		2007		2006		2005		2004
Net Sales	$	629,359	$	568,901	$	514,831	$	457,112	$	416,588
Net Earnings	$	27,908	$	32,112	$	29,450	$	26,043	$	22,710
Total Assets	$	408,408	$	380,288	$	340,808	$	305,924	$	277,424
Long-Term Debt	$	—	$	—	$	—	$	—	$	—
Capital Lease Obligations	$	474	$	565	$	—	$	—	$	—
Stockholders’ Equity	$	316,778	$	295,582	$	263,656	$	234,762	$	210,096

Common Share Data
Earnings Per Diluted Share	$	1.47	$	1.69	$	1.57	$	1.40	$	1.24
Earnings Per Basic Share	$	1.49	$	1.72	$	1.60	$	1.43	$	1.27
Book Value Per Share	$	16.90	$	15.80	$	14.28	$	12.85	$	11.67
Common Shares Outstanding At Year End		18,748		18,702		18,468		18,272		18,012
Cash Dividends Declared Per Common Share	$	.37	$	.34	$	.30	$	.25	$	—

Item 7. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

Critical Accounting Policies, Judgments and Estimates

We prepare our financial statements in conformity with accounting principles generally accepted in the United States of America. The preparation of such financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of those financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The Company discloses its significant accounting policies in the accompanying notes to its audited consolidated financial statements.

Judgments and estimates of uncertainties are required in applying the Company’s accounting policies in certain areas. Following are some of the areas requiring significant judgments and estimates: revenue recognition, accounts receivable, cash flow and valuation assumptions in performing asset impairment tests of long-lived assets, estimates of the useful lives of intangible assets and insurance reserves.

There are numerous critical assumptions that may influence accounting estimates in these and other areas. We base our critical assumptions on historical experience, third-party data and various other estimates we believe to be reasonable. A description of the aforementioned policies follows:

Revenue Recognition — We recognize revenue from our products when the products are shipped to our customers and when equipment service is performed for our customers who are charged on a time and material basis. We also sell equipment service contracts with terms of coverage ranging between 12 and 60 months. We record deferred income on equipment service contracts which is amortized by the straight-line method over the term of the contracts. We record offsets to revenue for allowances, end-user pricing adjustments and trade spending. 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 the amount of liability to record is cumbersome and subject to inaccuracies. However, we feel that due to constant monitoring of the process, any inaccuracies would not be material. Our recorded liability for allowances, end-user pricing adjustments and trade spending was approximately $12,090,000 and $11,793,000 at September 27, 2008 and September 29, 2007, respectively.

Accounts Receivable — We record accounts receivable at the time revenue is recognized. Bad debt expense is recorded in marketing and administrative expenses. The amount of the allowance for doubtful accounts is based on our estimate of the accounts receivable amount that is uncollectable. It is comprised of a general reserve based on historical experience and amounts for specific customers’ accounts receivable balances that we believe are at risk due to our knowledge of facts regarding the customer(s). We continually monitor our estimate of the allowance for doubtful accounts and adjust it monthly. We usually have 2 to 3 customers with accounts receivable balances of between $1.5 million to $6 million. Failure of these customers, and others with lesser balances, to pay us the amounts owed, could have a material impact on our consolidated financial statements.

Accounts receivable due from any of our customers is subject to risk. Our total bad debt expense was $502,000, $189,000 and $300,000 for the fiscal years 2008, 2007 and 2006, respectively. At September 27, 2008 and September 29, 2007, our accounts receivables were $61,176,000 and $56,772,000, net of an allowance for doubtful accounts of $926,000 and $1,052,000.

Asset Impairment — In 2006, goodwill of our frozen beverages reporting unit increased by $3,487,000 as a result of the acquisitions of ICEE of Hawaii and SLUSH PUPPIE and the goodwill of our food service reporting unit increased by $839,000 as a result of a smaller acquisition. In 2007, goodwill of our food service reporting unit increased by $1,763,000 as a result of the acquisitions of Hom/Ade Foods and DADDY RAY’S. In 2007, goodwill of our frozen beverages reporting unit increased by $603,000 as the result of the Kansas ICEE acquisition.

We have three reporting units with goodwill totaling $60,314,000 as of September 27, 2008. We utilize historical reporting unit cash flows (defined as reporting unit operating income plus depreciation and amortization) as a proxy for expected future reporting unit cash flows to evaluate the fair value of these reporting units. If the fair value estimated substantially exceeds the carrying value of the reporting unit, including the goodwill, if any, associated with that unit, we do not recognize any impairment loss. We do not engage a third party to assist in this analysis as we believe that our in-house expertise is adequate to perform the analysis.

Licenses and rights, customer relationships and non compete agreements are being amortized by the straight-line method over periods ranging from 3 to 20 years and amortization expense is reflected throughout operating expenses. The gross carrying amount of intangible assets increased by $17,034,000 in 2006 primarily as a result of the acquisition of $15,188,000 of intangible assets of the SLUSH PUPPIE business. The gross carrying amount of intangibles increased by $39,633,000 in 2007 primarily as a result of the acquisitions of $23,771,000 and $12,799,000 of intangible assets of Hom/Ade Foods and DADDY RAY’S, respectively. Long-lived assets, including fixed assets and intangibles, are reviewed for impairment as events or changes in circumstances occur indicating that the carrying amount of the asset may not be recoverable. Cash flow analyses are used to assess impairment. The estimates of future cash flows involve considerable management judgment and are based upon assumptions about expected future operating performance. Assumptions used in these forecasts are consistent with internal planning. The actual cash flows could differ from management’s estimates due to changes in business conditions, operating performance, economic conditions, competition and consumer preferences.

Useful Lives of Intangible Assets — Most of our trade names which have carrying value have been assigned an indefinite life and are not amortized because we plan to receive the benefit from them indefinitely. If we decide to curtail or eliminate the use of any of the trade names or if sales that are generated from any particular trade name do not support the carrying value of the trade name, then we would record an impairment or assign an estimated useful life and amortize over the remaining useful life. Rights such as prepaid licenses and non compete agreements are amortized over contractual periods. The useful lives of customer relationships are based on the discounted cash flows expected to be received from sales to the customers adjusted for an attrition rate. The loss of a major customer or declining sales in general could create an impairment charge.

Insurance Reserves — We have a self-insured medical plan which covers approximately 1,100 of our employees. We record a liability for incurred but not yet reported or paid claims based on our historical experience of claims payments and a calculated lag time period. We maintain a spreadsheet that includes claims payments made each month according to the date the claim was incurred. This enables us to have an historical record of claims incurred but not yet paid at any point in the past. We then compare our accrued liability to the more recent claims incurred but not yet paid amounts and adjust our recorded liability up or down accordingly. Our recorded liability at September 27, 2008 and September 29, 2007 was $772,000 and $801,000, respectively. Considering that we have stop loss coverage of $175,000 for each individual plan subscriber, the general consistency of claims payments and the short time lag, we believe that there is not a material exposure for this liability. Because of the foregoing, we do not engage a third party actuary to assist in this analysis.

We self-insure, up to loss limits, worker’s compensation and automobile liability claims. Accruals for claims under our self-insurance program are recorded on a claims-incurred basis. Under this program, the estimated liability for claims incurred but unpaid in fiscal years 2008 and 2007 was $1,600,000 and $1,900,000, respectively. Our total recorded liability for all years’ claims incurred but not yet paid was $6,400,000 and $6,800,000 at September 27, 2008 and September 29, 2007, respectively. We estimate the

liability based on total incurred claims and paid claims adjusting for loss development factors which account for the development of open claims over time. We estimate the amounts we expect to pay for some insurance years by multiplying incurred losses by a loss development factor which is based on insurance industry averages and the age of the incurred claims; our estimated liability is then the difference between the amounts we expect to pay and the amounts we have already paid for those years. Loss development factors that we use range from 1.0 to 2.0. However, for some years, the estimated liability is the difference between the amounts we have already paid for that year and the maximum we could pay under the program in effect for that particular year because the calculated amount we expect to pay is higher than the maximum. For other years, where there are few claims open, the estimated liability we record is the amount the insurance company has reserved for those claims. We evaluate our estimated liability on a continuing basis and adjust it accordingly. Due to the multi-year length of these insurance programs, there is exposure to claims coming in lower or higher than anticipated; however, due to constant monitoring and stop loss coverage on individual claims, we believe our exposure is not material. Because of the foregoing, we do not engage a third party actuary to assist in this analysis. In connection with these self-insurance agreements, we customarily enter into letters of credit arrangements with our insurers. At September 27, 2008 and September 29, 2007, we had outstanding letters of credit totaling $9,475,000 and $9,595,000, respectively.

Refer to Note A to the accompanying consolidated financial statements for additional information on our accounting policies.

RESULTS OF OPERATIONS

Fiscal 2008 (52 weeks) Compared to Fiscal 2007 (52 weeks)

Net sales increased $60,548,000, or 11%, to $629,359,000 in fiscal 2008 from $568,901,000 in fiscal 2007. Adjusting for sales related to the acquisitions of DADDY RAY’S and Hom/Ade Foods in January 2007, and WHOLE FRUIT Sorbet and FRUIT-A-FREEZE Frozen Fruit Bar brands in April 2007, sales increased approximately 7%, or $41,681,000.

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.

Food Service

Sales to food service customers increased $44,430,000, or 12%, to $400,194,000 in fiscal 2008. Excluding the benefit of sales from acquisitions, sales increased approximately 7%. Soft pretzel sales to the food service market increased $925,000, or 1%, to $99,784,000 for the year. Sales of bakery products excluding Hom/Ade and DADDY RAY’S, increased $19,768,000, or 14%, for the year. Hom/Ade and DADDY RAY sales were $30,380,000 and $26,596,000, respectively, for the year. Churro sales were up 15% for the year with $25,286,000 of sales in 2008. Frozen juice bar and ices sales increased $3,635,000 or 8% to $51,206,000 for the year. Without WHOLE FRUIT and FRUIT-A-FREEZE, sales increased 5% for the year. Sales of our funnel cake products were down $835,000, or 12%, as sales declined to one customer. The changes in sales throughout the Food Service segment were from a combination of volume changes and price increases.

Retail Supermarkets

Sales of products to retail supermarkets increased $4,981,000 or 10% to $57,112,000 in fiscal 2008. Total soft pretzel sales to retail supermarkets were $27,559,000, an increase of 11% from fiscal 2007 virtually all due to pricing. Sales of frozen juice bars and ices increased 8% to $31,742,000 in 2008 due to increased volume of WHOLE FRUIT and FRUIT-A-FREEZE and reduced allowances on our other products. Coupon costs, a reduction of sales, were essentially unchanged for the year.

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 41% primarily due to closings or licensings of stores in the past year. At September 27, 2008, we had 5 stores open. Sales of stores open for both years were down 4% for the year.

Frozen Beverages

Frozen beverage and related product sales increased $12,178,000 or 8% to $170,418,000 in fiscal 2008. Beverage sales alone were up 6% for the year with approximately 2/3 of the increase resulting from a change in distribution to one customer and the balance resulting from pricing. Gallon sales were down 4% for the year in our base ICEE business. Service revenue increased $7,554,000, or 24%, to $38,803,000 for the year as we continue to grow this part of our business. Frozen carbonated machine sales decreased $1,680,000 to $14,793,000 for the year.

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 decreased 3.09 percentage points in 2008 from 2007 to 30%.

We were impacted by higher unit commodity costs of over $30,000,000 for the year. This compares to an increase of less than $10,000,000 in 2007 compared to 2006. We expect to be impacted by higher commodity costs going forward, at least over the short term; however, we do expect the magnitude of the year over year increases to continue the decline which began in our fourth quarter. Reduced trade spending of about $2,700,000 in our retail supermarket segment benefitted gross profit and contributed to the improved operating income in the Retail Supermarkets segment. Pricing and lower liability insurance costs of approximately $1,900,000 also helped to partially offset some of the commodity costs’ increase.

Total operating expenses increased $5,624,000 to $143,571,000 in fiscal 2008 but as a percentage of sales decreased 1.44 percentage points to 23% of sales in 2008. Other general income of $375,000 this year primarily consists 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. Last year, other general income consisted of primarily $495,000 and $321,000 insurance gains in the Frozen Beverages and The Restaurant Group segments, respectively and a royalty settlement of $569,000 in the Food Service segment reduced by other general expense items. Marketing expenses decreased 1.26 percentage points to 11% of sales. Controlled spending in our Food Service and Retail Supermarket segments accounted for the decline with lower advertising expense of approximately $2,000,000 accounting for about 25% of the percentage point decline. Distribution expenses decreased .24 of a percentage point to 8% of sales even though our fuel costs were approximately $2 million higher in our Frozen Beverages segment and administrative expenses were about 3-1/2% of sales in both years.

Operating income decreased $5,244,000, or 11%, to $43,336,000 in fiscal 2008 as a result of the aforementioned items.

Investment income decreased by $55,000 to $2,665,000 primarily due to lower investment returns in the fourth quarter.

The effective income tax rate increased to 39% in fiscal year 2008 from 37% in fiscal 2007. Last year included the benefit of the resolution of state and foreign tax matters. This year had a lower benefit from stock based compensation as well as additional expense resulting from changes in state tax requirements.

Net earnings decreased $4,204,000, or 13%, in fiscal 2008 to $27,908,000, or $1.47 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.

RESULTS OF OPERATIONS

Fiscal 2007 (52 weeks) Compared to Fiscal 2006 (53 weeks)

Net sales increased $54,070,000, or 11%, to $568,901,000 in fiscal 2007 from $514,831,000 in fiscal 2006. Adjusting for sales related to the acquisitions of ICEE of Hawaii in January 2006, SLUSH PUPPIE in May 2006, DADDY RAY’S in January 2007, HOM/ADE Foods in January 2007, and WHOLE FRUIT Sorbet and FRUIT-A-FREEZE Frozen Fruit Bar brands in April 2007, sales increased approximately 2%, or $9,236,000.

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.

Food Service

Sales to food service customers increased $35,597,000, or 11%, to $355,764,000 in fiscal 2007. Excluding the benefit of Hom/Ade sales of $22,409,000, DADDY RAY’S sales of $15,468,000, and WHOLE FRUIT and FRUIT-A-FREEZE sales of $1,781,000, sales increased approximately 1%. Soft pretzel sales to the food service market decreased $722,000, or 1%, to $98,859,000 for the year. Sales of bakery products excluding Hom/Ade and DADDY RAY’S, increased $3,648,000, or 3%, for the year. Churro sales were essentially unchanged for the year with $22,069,000 of sales in 2007. Frozen juice bar and ices sales increased $3,235,000 or 7% to $47,571,000 for the year. Without WHOLE FRUIT and FRUIT-A-FREEZE, sales increased 3% for the year with sales to school food service customers accounting for most of the increase. Sales of our funnel cake products were down $1,198,000, or 15%, as sales declined to one customer. The changes in sales throughout the Food Service segment were from a combination of volume changes and price increases.

Retail Supermarkets

Sales of products to retail supermarkets increased $5,183,000 or 11% to $52,131,000 in fiscal 2007. Total soft pretzel sales to retail supermarkets were $24,867,000, an increase of 10% from fiscal 2006 due to volume and pricing. Sales of frozen juice bars and ices increased $3,626,000, or 14%, to $29,426,000 in 2007 from $25,800,000 in 2006 due to volume and pricing. Coupon costs, a reduction of sales, were up $687,000, or 33%, for the year, because of increased distribution of coupons.

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 29% primarily due to closings or licensings of stores in the past year. At September 29, 2007, we had 9 stores open. Sales of stores open for both years were down 8% for the year.

Frozen Beverages

Frozen beverage and related product sales increased $14,421,000 or 10% to $158,420,000 in fiscal 2007. Excluding the benefit of sales from the acquisitions of ICEE of Hawaii and SLUSH PUPPIE, frozen beverages and related product sales would have been up 2% for the year. Beverage sales alone were up 9% for the year. Excluding sales from the acquisitions, beverage sales alone would have been up 1% for the year. Gallon sales were down 3% for the year in our base ICEE business. Service revenue increased $5,831,000, or 23%, to $31,249,000 for the year as we continue to emphasize growing this part of our business. Frozen carbonated machine sales decreased $1,111,000 to $16,473,000 for the year.

Consolidated

Gross profit as a percent of sales decreased .71 of a percentage point in 2007 from 2006 although it remained at 33% of sales for both 2007 and 2006. Excluding the lower gross profit margin of the acquired DADDY RAY’S business, gross profit percentage would have declined only .26 of a percentage point for the year.

We were impacted by higher commodity costs of over $8,000,000 for the year with over $3,500,000 impacting us in the fourth quarter. Reduced trade spending in our retail supermarket segment, other pricing and lower utility and insurance costs of approximately $1,100,000 helped to offset some of the commodity costs increase.

We expect to continue to be impacted by higher commodity costs going forward.

Total operating expenses increased $10,592,000 to $137,947,000 in fiscal 2007 but as a percentage of sales decreased .49 of a percentage point to 24% of sales in 2007. An impairment charge last year of $1,193,000 in the Food Service segment for the writedown of robotic packaging equipment and an increase of other general income of $1,312,000 this year accounted for virtually all of the .49 percentage point decrease. Other general income of $1,388,000 this year primarily consists of $495,000 and $321,000 insurance gains in the Frozen Beverages and The Restaurant Group segments, respectively and a royalty settlement of $569,000 in the Food Service segment reduced by other general expense items. Marketing expenses increased .38 of a percentage point but stayed at 12% of sales. Marketing expenses this year include $1,940,000 of costs for a TV/Internet advertising campaign for our retail SUPERPRETZEL product.

Operating income increased $3,516,000, or 8%, to $48,580,000 in fiscal 2007 as a result of the aforementioned items. Excluding the writedown of robotic packaging equipment last year, operating income increased $2,323,000, or 5%. Excluding the impact of the writedown of the robotic packaging equipment last year and the increase in other general income this year, operating income was up $1,011,000, or 2%, this year.

Investment income decreased by $417,000 to $2,720,000 primarily due to lower investable balances of cash and marketable securities.

The effective income tax rate decreased to 37% in fiscal year 2007 from 39% in fiscal 2006 due primarily from the resolution of state and foreign tax matters.

Net earnings increased $2,662,000, or 9%, in fiscal 2007 to $32,112,000, or $1.69 per diluted share as a result of the aforementioned items.

ACQUISITIONS

In January 2004, we acquired the assets of Country Home Bakers, Inc. Country Home Bakers, Inc., with its manufacturing facility in Atlanta, Georgia, manufactures and distributes bakery products to the food service and supermarket industries. Its product line includes cookies, biscuits, and frozen doughs sold under the names READI-BAKE, COUNTRY HOME and private labels sold through supermarket in-store bakeries.

In March 2005, we acquired all of the assets of Snackworks LLC, d/b/a Bavarian Brothers, a manufacturer of soft pretzels headquartered in Rancho Cucamonga, California. Snackworks operates production facilities in California and Chambersburg, Pennsylvania and markets its products under the brand names SERIOUSLY TWISTED!, BAVARIAN BROTHERS and CINNAPRETZEL. Snackworks sells throughout the continental United States primarily to mass merchandisers and theatres.

On January 31, 2006, we acquired the stock of ICEE of Hawaii. ICEE of Hawaii, headquartered in Waipahu, Hawaii, distributes ICEE frozen beverages and related products throughout the Hawaiian islands.

On May 26, 2006, The ICEE Company, our frozen carbonated beverage distribution company, acquired the SLUSH PUPPIE branded business from Dr. Pepper/Seven Up, Inc., a Cadbury Schweppes Americas Beverages Company for $18.1 million plus approximately $4.3 million in working capital. SLUSH PUPPIE, North America’s leading brand for frozen non-carbonated beverages, is sold through an existing established distributor network to over 20,000 locations in the United States and Canada as well as to certain international markets.

On January 9, 2007, we acquired the assets of Hom/Ade Foods, Inc. Hom/Ade Foods, Inc., based in Pensacola, Florida is a manufacturer and distributor of biscuits and dumplings sold under the MARY B’s and private label store brands predominately to the retail supermarket trade.

Annual sales of the business were approximately $30 million for the year ended December 2006.

On January 31, 2007, we acquired the assets of Radar, Inc. Radar, Inc. is a manufacturer and seller of fig and fruit bars selling its products under the brand DADDY RAY’S. Headquartered and with its manufacturing facility in Moscow Mills, Missouri (outside of St. Louis), Radar, Inc. had annual sales of approximately $23 million dollars selling to the retail grocery segment and mass merchandisers, both branded and private label.

On April 2, 2007, we acquired the WHOLE FRUIT Sorbet and FRUIT-A-FREEZE Frozen Fruit Bar brands, along with related assets including a manufacturing facility located in Norwalk, California, selling primarily to the supermarket industry. Sales for 2007 were $2,429,000.

On June 25, 2007, we acquired the assets of an ICEE distributor in Kansas with annual sales of less than $1 million.

These acquisitions were accounted for under the purchase method of accounting, and their operations are included in the accompanying consolidated financial statements from their respective acquisition dates.

LIQUIDITY AND CAPITAL RESOURCES

Although there are many factors that could impact our operating cash flow, most notably net earnings, we believe that our future operating cash flow, along with our borrowing capacity, is sufficient to fund future growth and expansion. See Note C to these financial statements for a discussion of auction market preferred stock which previously we had considered to be a source of liquidity.

Fluctuations in the value of the Mexican and Canadian currencies and the resulting translation of the net assets of our Mexican and Canadian subsidiaries caused a decrease of $3,000 in accumulated other comprehensive loss in 2008 and an increase of $42,000 in 2007 and an increase of $46,000 in 2006. In 2008, sales of the two subsidiaries were $11,078,000 as compared to $9,785,000 in 2007 and $7,889,000 in 2006.

Subsequent to September 27, 2008 and prior to the filing of this Form 10-K, we purchased and retired 400,000 shares of our comon stock at a purchase price of $27.90 per share from Gerald B. Shreiber, Chairman of the Board, President, Chief Executive Officer and Director of the Company.

In December 2006, we entered into an amended and restated loan agreement with our existing banks which provides for up to a $50,000,000 revolving credit facility repayable in December 2011. The agreement contains restrictive covenants and requires commitment fees in accordance with standard banking practice. There were no outstanding balances under the facility at September 27, 2008 and September 29, 2007. The significant financial covenants are:

·	Earnings before interest expense and income taxes divided by interest expense shall not be less than 1.5 to 1.

·	Tangible net worth must initially be more than $170 million.

·	Total funded indebtedness divided by earnings before interest expense, income taxes, depreciation and amortization shall not be greater than 2.25 to 1.

·	Total liabilities divided by tangible net worth shall not be more than 2.0 to 1.

We were in compliance with the financial covenants described above at September 27, 2008.

We self-insure, up to loss limits, certain insurable risks such as worker’s compensation and automobile liability claims. Accruals for claims under our self-insurance program are recorded on a claims-incurred basis. Under this program, the estimated liability for claims incurred but unpaid in fiscal years 2008 and 2007 was $1,600,000 and $1,900,000, respectively. In connection with certain self-insurance agreements, we customarily enter into letters of credit arrangements with our insurers. At September 27, 2008 and September 29, 2007, we had outstanding letters of credit totaling $9,475,000 and $9,595,000, respectively.

The following table presents our contractual cash flow commitments on long-term debt, operating leases and purchase commitments for raw materials and packaging. See Notes to the consolidated financial statements for additional information on our long-term debt and operating leases.

	Payments Due by Period (in thousands)
	Total		Less Than 1 Year		1-3 Years		4-5 Years		After 5 Years
Long-term debt, including current maturities	$	—	$	—	$	—	$	—	$	—
Capitalized lease obligations		474		93		194		187		—
Purchase commitments		44,316		44,316		—		—		—
Operating leases		37,872		9,716		14,126		6,568		7,462
Total	$	82,662	$	54,125	$	14,320	$	6,755	$	7,462

The amounts shown above exclude uncertain tax benefits of $1,735,000 as determined under FIN 48 as we cannot predict if or when such amounts, if any, will be paid or be payable to the taxing authorities.

The purchase commitments do not exceed our projected requirements over the related terms and are in the normal course of business.

Fiscal 2008 Compared to Fiscal 2007

Cash and cash equivalents, marketable securities held to maturity and auction market preferred stock increased $24,916,000, or 44%, to $81,935,000 from a year ago primarily because net cash provided by operating activities of $54,897,000 was more than cash used for purchases of property, plant and equipment by $32,116,000, which was partially offset by cash used in financing activities of $7,600,000.

Trade receivables increased $4,404,000, or 8%, to $61,176,000 in 2008 due primarily to higher net sales. Inventories increased $2,496,000 or 5% to $49,095,000 in 2008 due primarily to higher unit costs of inventories.

Net property, plant and equipment was essentially unchanged at $93,064,000 because purchases of fixed assets were essentially offset by depreciation of fixed assets.

Other intangible assets, less accumulated amortization decreased $4,700,000 to $53,633,000 due completely to amortization.

Goodwill was unchanged at $60,314,000 from September 29, 2007 to September 27, 2008.

Accounts payable and accrued liabilities increased $550,000, or 1% from 2007 to 2008 primarily because of higher costs of raw materials and packaging.

Deferred income tax liabilities increased by $3,876,000 to $23,056,000 which related primarily to amortization of goodwill and other intangible assets and depreciation of property, plant and equipment.

Other long-term liabilities at September 27, 2008 include $1,735,000 of gross unrecognized tax benefits.

Common stock increased $1,135,000 to $48,415,000 in 2008 because increases from the exercise of incentive and nonqualified stock options, stock issued under our stock purchase plan for employees and share-based compensation expense exceeded the repurchase of common stock of $3,539,000 by $1,135,000.

Net cash provided by operating activities decreased $2,946,000 to $54,897,000 in 2008 primarily because of the decrease to net earnings of $4,204,000.

Net cash used in investing activities decreased $38,980,000 to $18,854,000 in 2008 from $57,834,000 in 2007 primarily because we did not make any acquisitions in 2008.

Net cash used in financing activities of $7,600,000 in 2008 compared to net cash used by financing activities of $1,769,000 in 2007. The increase was caused by $3,539,000 of payments to repurchase common stock along with a decrease in proceeds from the issuance of common stock upon the exercise of stock options.

In 2008, the major variables in determining our net increase in cash and cash equivalents and marketable securities were our net earnings, depreciation and amortization of fixed assets and purchases of property, plant and equipment. Additionally, in 2008, due to the failure of the auction market, we reclassified a portion of our investment securities to long-term assets (see Note C to these financial statements). Other variables which in the past have had a significant impact on our change in cash and cash equivalents are payments for the repurchase of common stock, proceeds from borrowings and payments of long-term debt. As discussed in results of operations, our net earnings may be influenced by many factors. Depreciation and amortization of fixed assets is primarily determined by past purchases of property, plant and equipment although it could be impacted by a significant acquisition. Purchases of property, plant and equipment are primarily determined by our ongoing normal manufacturing and marketing requirements but could be increased significantly for manufacturing expansion requirements or large frozen beverage customer needs. From time to time, we have repurchased common stock and we anticipate that we will do so again in the future. We are actively seeking acquisitions that could be a significant use of cash. Although the balance of our long-term debt is $0 at September 27, 2008, we may borrow in the future depending on our needs.

Fiscal 2007 Compared to Fiscal 2006

Cash and cash equivalents and marketable securities available for sale decreased $19,602,000, or 26%, to $57,019,000 from a year ago primarily because net cash provided by operating activities of $57,843,000 was less than cash used for purchases of property, plant and equipment and for purchase of companies by $17,669,000.

Trade receivables increased $3,739,000, or 7%, to $56,772,000 in 2007 due primarily to an increased level of business resulting from acquisitions and internal growth. Inventories increased $8,809,000 or 23% to $46,599,000 in 2007. The increases were due primarily to increased levels of business and higher unit costs of inventories.

Net property, plant and equipment increased $7,775,000 to $93,222,000 because purchases of fixed assets and fixed assets acquired in acquisitions exceeded depreciation of existing assets.

Other intangible assets, less accumulated amortization increased $35,664,000 to $58,333,000 primarily because of the purchase of intangible assets of $23,771,000, $12,799,000, $2,731,000 and $413,000 in the Hom/Ade Foods, DADDY RAY’S, WHOLE FRUIT and FRUIT-A-FREEZE and Kansas ICEE acquisitions, respectively.

Goodwill increased $2,366,000 to $60,314,000 as a result of the purchases of the aforementioned acquisitions.

Accounts payable and accrued liabilities increased $5,033,000, or 10% from 2006 to 2007 primarily because of increased levels of business, higher costs of raw materials and packaging and higher income taxes payable.

Deferred income tax liabilities increased by $969,000 to $19,180,000 which related primarily to amortization of goodwill and other intangible assets.

Common stock increased $6,182,000 to $47,280,000 in 2007 because of the exercise of incentive and nonqualified stock options, stock issued under our stock purchase plan for employees and share-based compensation expense.

Net cash provided by operating activities increased $2,878,000 to $57,843,000 in 2007 primarily because of an increase to net earnings of $2,662,000 and higher amortization of intangibles and deferred costs of $2,797,000 compared to 2006.

Net cash used in investing activities increased $7,205,000 to $57,834,000 in 2007 from $50,629,000 in 2006 primarily because purchases of property, plant and equipment and payments for purchases of companies, net of cash acquired were higher by $29,509,000, which was offset by the net difference between proceeds from sales of marketable securities and purchases of marketable securities of $22,782,000 this year compared to last year.

Net cash used in financing activities of $1,769,000 in 2007 compared to net cash used by financing activities of $2,464,000 in 2006. The decrease was caused by increased proceeds from the issuance of common stock.

In 2007, the major variables in determining our net increase in cash and cash equivalents and marketable securities available for sale were our net earnings, depreciation and amortization of fixed assets, purchases of property, plant and equipment and payments for the purchase of companies. Other variables which in the past have had a significant impact on our change in cash and cash equivalents are payments for the repurchase of common stock, proceeds from borrowings and payments of long-term debt. As discussed in results of operations, our net earnings may be influenced by many factors. Depreciation and amortization of fixed assets is primarily determined by past purchases of property, plant and equipment although it could be impacted by a significant acquisition in the current year. Purchases of property, plant and equipment are primarily determined by our ongoing normal manufacturing and marketing requirements but could be increased significantly for manufacturing expansion requirements or large frozen beverage customer needs. From time to time, we have repurchased common stock and we anticipate that we will do so again in the future. We are actively seeking acquisitions that could be a significant use of cash. Although the balance of our long-term debt is $0 at September 29, 2007, we may borrow in the future depending on our needs.

Item 7A. Quantitative And Qualitative Disclosures About Market Risk

The following is the Company’s quantitative and qualitative analysis of its financial market risk:

Interest Rate Sensitivity

The Company has in the past entered into interest rate swaps to limit its exposure to interest rate risk and may do so in the future if the Board of Directors feels that such non-trading purpose is in the best interest of the Company and its shareholders. As of September 27, 2008, the Company had no interest rate swap contracts.

Interest Rate Risk

At September 27, 2008, the Company had no long-term debt obligations.

Purchasing Risk

The Company’s most significant raw material requirements include flour, shortening, corn syrup, sugar, juice, cheese, chocolate, and a variety of nuts. The Company attempts to minimize the effect of future price fluctuations related to the purchase of raw materials primarily through forward purchasing to cover future manufacturing requirements, generally for periods from 1 to 12 months. Futures contracts are not used in combination with forward purchasing of these raw materials. The Company’s procurement practices are intended to reduce the risk of future price increases, but also may potentially limit the ability to benefit from possible price decreases.

Foreign Exchange Rate Risk

The Company has not entered into any forward exchange contracts to hedge its foreign currency rate risk as of September 27, 2008 because it does not believe its foreign exchange exposure is significant.

Item 8. Financial Statements And Supplementary Data

The financial statements of the Company are filed under this Item 8, beginning on page F-1 of this report.

Item 9. Changes In And Disagreements With Accountants On Accounting And Financial Disclosure

None.

Item 9A. Controls And Procedures

Disclosure Controls and Procedures

We carried out an evaluation under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”), as amended for financial reporting, as of September 27, 2008. Based on that evaluation, our chief executive officer and chief financial officer

concluded that these controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported as specified in Securities and Exchange Commission rules and forms. There were no changes in these controls or procedures identified in connection with the evaluation of such controls or procedures that occurred during our last fiscal quarter, or in other factors that have materially affected, or are reasonably likely to materially affect these controls or procedures. There were no changes in the Company’s internal controls over financial reporting that occurred during our last fiscal quarter.

Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission. These disclosure controls and procedures include, among other things, controls and procedures designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, the chief executive officer and chief financial officer and effected by the board of directors and management to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

·	Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of our management and board of directors;

·	Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting as of September 27, 2008. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.

Based on our assessment, our management believes that, as of September 27, 2008, our internal control over financial reporting is effective. Our independent registered public accounting firm has issued a report on the effectiveness of our internal control over financial reporting. That report appears in this Annual Report on Form 10-K on page F-2.

Item 9B. Other Information

There was no information required on Form 8-K during the quarter that was not reported.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Portions of the information concerning directors and executive officers, appearing under the captions “Information Concerning Nominees For Election To Board” and “Information Concerning Continuing Directors And Executive Officers” and information concerning Section 16(a) Compliance appearing under the caption “Compliance with Section 16(a) of the Securities Exchange Act of 1934” in the Company’s Proxy Statement filed with the Securities and Exchange Commission in connection with the Annual Meeting of Shareholders to be held on February 12, 2009 (“2008 Proxy Statement”) is incorporated herein by reference.

Portions of the information concerning the Audit Committee, the requirement for an Audit Committee Financial Expert and the Nominating Committee in the Company’s 2008 Proxy Statement filed with the Securities and Exchange Commission in connection with the Annual Meeting of Shareholders to be held on February 12, 2009, is incorporated herein by reference.

The Company has adopted a Code of Ethics pursuant to Section 406 of the Sarbanes-Oxley Act of 2002, which applies to the Company’s principal executive officer and senior financial officer. The Company has also adopted a Code of Business Conduct and Ethics which applies to all employees. The Company will furnish any person, without charge, a copy of the Code of Ethics upon written request to J & J Snack Foods Corp., 6000 Central Highway, Pennsauken, New Jersey 08109, Attn: Dennis Moore. A copy of the Code of Ethics can also be found on our website at www.jjsnack.com. Any waiver of any provision of the Code of Ethics granted to the principal executive officer or senior financial officer may only be granted by a majority of the Company’s disinterested directors. If a waiver is granted, information concerning the waiver will be posted on our website www.jjsnack.com for a period of 12 months.

Item 11. Executive Compensation

Information concerning executive compensation appearing in the Company’s 2008 Proxy Statement under the caption “Management Remuneration” is incorporated herein by reference.

The following is a list of the executive officers of the Company and their principal past occupations or employment. All such persons serve at the pleasure of the Board of Directors and have been elected to serve until the Annual Meeting of Shareholders on February 12, 2009 or until their successors are duly elected.

Name	Age	Position

Gerald B. Shreiber	67	Chairman of the Board, President, Chief Executive Officer and Director

Dennis G. Moore	53	Senior Vice President, Chief Financial Officer, Secretary, Treasurer and Director

Robert M. Radano	59	Senior Vice President, Sales and Chief Operating Officer

Dan Fachner	48	President of The ICEE Company Subsidiary

Vincent Melchiorre	48	Executive Vice President and Chief Marketing Officer

Gerald B. Shreiber is the founder of the Company and has served as its Chairman of the Board, President, and Chief Executive Officer since its inception in 1971. His term as a director expires in 2010.

Dennis G. Moore joined the Company in 1984. He served in various controllership functions prior to becoming the Chief Financial Officer in June 1992. His term as a director expires in 2012.

Robert M. Radano joined the Company in 1972 and in May 1996 was named Chief Operating Officer of the Company. Prior to becoming Chief Operating Officer, he was Senior Vice President, Sales responsible for national food service sales of J & J.

Dan Fachner has been an employee of ICEE-USA Corp., which was acquired by the Company in May 1987, since 1979. He was named Senior Vice President of The ICEE Company in April 1994 and became President in May 1997.

Vincent Melchiorre joined the Company in June 2007. Prior to joining the Company, he had been employed in management positions with Weston Foods, USA for one year, The Tasty Baking Company for three years and The Campbell Soup Company for over twenty years.

Item 12. Security Ownership Of Certain Beneficial Owners And Management And Related Stockholder Matters

Information concerning the security ownership of certain beneficial owners and management appearing in the Company’s 2008 Proxy Statement under the caption “Security Ownership of Certain Beneficial Owners and Management” is incorporated herein by reference.

The following table details information regarding the Company’s existing equity compensation plans as of September 27, 2008.

	(a)		(b)		(c)
Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders		1,027,000	$	21.84		1,311,000
Equity compensation plans not approved by security holders		—		—		—
Total		1,027,000	$	21.84		1,311,000

Item 13. Certain Relationships And Related Transactions, and Director Independence

None to report.

Item 14. Principal Accounting Fees And Services

Information concerning the Principal Accountant Fees and Services in the Company’s 2009 Proxy Statement is incorporated herein by reference.

PART IV

Item 15. Exhibits, Financial Statement Schedules

	(a)	The following documents are filed as part of this Report:

		(1) Financial Statements

		The financial statements filed as part of this report are listed on the Index to Consolidated Financial Statements and Financial Statements Schedule on page F-1.

		(2) Financial Statement Schedules — Page S-1

		Schedule II — Valuation and Qualifying Accounts

All other schedules are omitted either because they are not applicable or because the information required is contained in the financial statements or notes thereto.

	(b)	Exhibits

	3.1	Amended and Restated Certificate of Incorporation filed February 28, 1990. (Incorporated by reference from the Company’s Form 10-Q dated May 4, 1990.)

	3.2	Revised Bylaws adopted May 17, 2006. (Incorporated by reference from the Company’s Form 10-K dated December 6, 2006.)

	4.3	Amended and Restated Loan Agreement dated December 1, 2006 by and among J & J Snack Foods Corp. and Certain of its Subsidiaries and Citizens Bank of Pennsylvania, as Agent. (Incorporated by reference from the Company’s Form 10-K dated December 6, 2006.)

	10.1	Proprietary Exclusive Manufacturing Agreement dated July 17, 1984 between J & J Snack Foods Corp. and Wisco Industries, Inc. (Incorporated by reference from the Company’s Form S-1 dated February 4, 1986, file no. 33-2296).

	10.2*	J & J Snack Foods Corp. Stock Option Plan. (Incorporated by reference from the Company’s Definitive Proxy Statement dated December 19, 2002.)

	10.3*	Adoption Agreement for MFS Retirement Services, Inc. Non-Standardized 401(K) Profit Sharing Plan and Trust, effective September 1, 2004. (Incorporated by reference from the Company’s Form 10-K dated December 6, 2006.)

	10.4*	J & J Snack Foods Corp. Directors’ and Consultants’ Deferred Compensation Plan adopted November 21, 2005. (Incorporated by reference from the Company’s Form 10-K dated December 6, 2006.)

	10.6	Lease dated September 24, 1991 between J & J Snack Foods Corp. of New Jersey and A & H Bloom Construction Co. for the 101,200 square foot building next to the Company’s manufacturing facility in Pennsauken, New Jersey. (Incorporated by reference from the Company’s Form 10-K dated December 17, 1991.)

	10.7	Lease dated August 29, 1995 between J & J Snack Foods Corp. and 5353 Downey Associated Ltd. for the lease of the Vernon, CA facility. (Incorporated by reference from the Company’s Form 10-K dated December 21, 1995.)

	10.8*	J & J Snack Foods Corp. Employee Stock Purchase Plan (Incorporated by reference from the Company’s Form S-8 dated May 16, 1996).

	10.11	Amendment No. 1 to Lease dated August 29, 1995 between J & J Snack Foods Corp. and 5353 Downey Associated Ltd. for the lease of the Vernon, CA facility. (Incorporated by reference from the Company’s Form 10-K dated December 18, 2002).

	10.12	Employment agreement between Vincent A. Melchiorre and J & J Snack Foods Corp. (Incorporated by reference from the Company’s 8-K dated June 5, 2007).

	14.1	Code of Ethics Pursuant to Section 406 of the Sarbanes-Oxley Act of 2002. (Incorporated by reference from the Company’s 10-Q dated July 20, 2004).

	21.1**	Subsidiaries of J & J Snack Foods Corp.

	23.1**	Consent of Independent Registered Public Accounting Firm.

	31.1**	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	31.2**	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	32.1**	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act of 2002.

	32.2**	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act of 2002.

*Compensatory Plan.

**Filed Herewith.

SIGNATURES

Pursuant to the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused report to be signed on its behalf by the undersigned, thereunto duly authorized.

	J & J SNACK FOODS CORP.

December 8, 2008	By	/s/ Gerald B. Shreiber
		Gerald B. Shreiber, Chairman of the Board, President, Chief Executive Officer and Director (Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

December 8, 2008		/s/ Gerald B. Shreiber
		Gerald B. Shreiber, Chairman of the Board, President, Chief Executive Officer and Director (Principal Executive Officer)

December 8, 2008		/s/ Dennis G. Moore
		Dennis G. Moore, Senior Vice President, Chief Financial Officer and Director (Principal Financial Officer) (Principal Accounting Officer)

December 8, 2008		/s/ Sidney R. Brown
		Sidney R. Brown, Director

December 8, 2008		/s/ Peter G. Stanley
		Peter G. Stanley, Director

December 8, 2008		/s/ Leonard M. Lodish
		Leonard M. Lodish, Director

J & J SNACK FOODS CORP.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

AND FINANCIAL STATEMENT SCHEDULE

Financial Statements:

Report of Independent Registered Public Accounting Firm	F-2

Consolidated Balance Sheets as of September 27, 2008 and September 29, 2007	F-3

Consolidated Statements of Earnings for fiscal years ended September 27, 2008, September 29, 2007 and September 30, 2006	F-4

Consolidated Statement of Changes in Stockholders’ Equity for the fiscal years ended September 27, 2008, September 29, 2007 and September 30, 2006	F-5

Consolidated Statements of Cash Flows for fiscal years ended September 27, 2008, September 29, 2007 and September 30, 2006	F-6

Notes to Consolidated Financial Statements	F-7

Financial Statement Schedule:

Schedule II — Valuation and Qualifying Accounts	S-1

F-1

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors

J&J Snack Foods Corp. and Subsidiaries

We have audited the accompanying consolidated balance sheets of J&J Snack Foods Corp. and Subsidiaries as of September 27, 2008 and September 29, 2007, and the related consolidated statements of earnings, changes in stockholders’ equity, and cash flows for each of the fiscal years in the three-year period ended September 27, 2008 (52 weeks, 52 weeks, and 53 weeks, respectively). Our audits of the basic financial statements included the financial statement schedule, Valuation and Qualifying Accounts, listed in the index to the consolidated financial statements. We have also audited J&J Snack Foods Corp and Subsidiaries’ internal control over financial reporting as of September 27, 2008, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). J&J Snack Foods Corp. and Subsidiaries’ management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting which is included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and financial statement schedule and an opinion on J&J Snack Foods Corp. and Subsidiaries’ internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of J&J Snack Foods Corp. and Subsidiaries as of September 27, 2008 and September 29, 2007, and the consolidated results of their operations and their consolidated cash flows for each of the fiscal years in the three-year period ended September 27, 2008 (52 weeks, 52 weeks and 53 weeks) in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Also in our opinion, J&J Snack Foods Corp. and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of September 27, 2008, based on criteria established in Internal Control-Integrated Framework issued by COSO.

As discussed in Note A to the consolidated financial statements, the Company has adopted Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109, in 2008.

/s/ Grant Thornton LLP

Philadelphia, Pennsylvania

November 26, 2008

F-2

J & J SNACK FOODS CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	September 27,			September 29,
	2008			2007
	(in thousands, except share amounts)

Assets
Current Assets
Cash and cash equivalents	$	44,265		$	15,819
Marketable securities held to maturity		2,470			—
Auction market preferred stock		14,000			41,200
Receivables
Trade, less allowances of $926 and $1,052, respectively		61,176			56,772
Other		677			424
Inventories		49,095			46,599
Prepaid expenses and other		1,962			1,425
Deferred income taxes		3,555			3,125
Total current assets		177,200			165,364

Property, Plant and Equipment, at cost		364,164			352,829
Less accumulated depreciation and amortization		271,100			259,607
		93,064			93,222

Other Assets
Goodwill		60,314			60,314
Other intangible assets, net		53,633			58,333
Auction market preferred stock		21,200			—
Other		2,997			3,055
		138,144			121,702
	$	408,408		$	380,288

Liabilities and Stockholders’ Equity
Current Liabilities
Current obligations under capital leases	$	93		$	91
Accounts payable		48,580			45,278
Accrued liabilities		5,557			8,309
Accrued compensation expense		10,232			9,335
Dividends payable		1,732			1,588
Total current liabilities		66,194			64,601

Long-term obligations under capital leases		381			474
Deferred income taxes		23,056			19,180
Other long-term liabilities		1,999			451

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 18,748,000 and 18,702,000 respectively		48,415			47,280
Accumulated other comprehensive loss		(2,003	)		(2,006	)
Retained earnings		270,366			250,308
		316,778			295,582
	$	408,408		$	380,288

The accompanying notes are an integral part of these statements.

F-3

J & J SNACK FOODS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(in thousands, except per share information)

	Fiscal year ended
	September 27,			September 29,			September 30,
	2008			2007			2006
	(52 weeks)			(52 weeks)			(53 weeks)
Net Sales	$	629,359		$	568,901		$	514,831
Cost of goods sold(1)		442,452			382,374			342,412
Gross profit		186,907			186,527			172,419

Operating expenses
Marketing(2)		69,792			70,248			61,601
Distribution(3)		52,609			48,945			45,331
Administrative(4)		21,545			20,142			19,306
Impairment charge		—			—			1,193
Other general income		(375	)		(1,388	)		(76	)
		143,571			137,947			127,355
Operating income		43,336			48,580			45,064

Other income (expenses)
Investment income		2,665			2,720			3,137
Interest expense and other		(116	)		(142	)		(129	)
		2,549			2,578			3,008
Earnings before income taxes		45,885			51,158			48,072

Income taxes		17,977			19,046			18,622

NET EARNINGS	$	27,908		$	32,112		$	29,450

Earnings per diluted share	$	1.47		$	1.69		$	1.57

Weighted average number of diluted shares		19,008			19,005			18,807

Earnings per basic share	$	1.49		$	1.72		$	1.60

Weighted average number of basic shares		18,770			18,635			18,421

(1)	Includes share-based compensation expense of $229 for the year ended September 27, 2008, $227 for the year ended September 29, 2007 and $297 for the year ended September 30, 2006.
(2)	Includes share-based compensation expense of $799 for the year ended September 27, 2008, $716 for the year ended September 29, 2007 and $576 for the year ended September 30, 2006.
(3)	Includes share-based compensation expense of $23 for the year ended September 27, 2008, $50 for the year ended September 29, 2007 and $26 for the year ended September 30, 2006.
(4)	Includes share-based compensation expense of $800 for the year ended September 27, 2008, $747 for the year ended September 29, 2007 and $687 for the year ended September 30, 2006.

All share amounts reflect the 2-for-1 stock split effective January 5, 2006.

The accompanying notes are an integral part of these statements.

F-4

J & J SNACK FOODS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands)

							Accumulated Other
	Common Stock						Comprehensive			Retained						Comprehensive
	Shares			Amount			Loss			Earnings			Total			Income
Balance at September 25, 2005		18,272		$	36,593		$	(1,918	)	$	200,589		$	235,264
Issuance of common stock upon exercise of stock options		164			2,253			—			—			2,253
Issuance of common stock for employee stock purchase plan		23			556			—			—			556
Foreign currency translation adjustment		—			—			(46	)		—			(46	)	$	(46	)
Issuance of common stock under deferred stock plan		9			392			—			—			392
Dividends declared		—			—			—			(5,517	)		(5,517	)
Share-based compensation		—			1,304			—			—			1,304
Net earnings		—			—			—			29,450			29,450			29,450
Comprehensive income		—			—			—			—			—		$	29,404
Balance at September 30, 2006		18,468		$	41,098		$	(1,964	)	$	224,522		$	263,656
Issuance of common stock upon exercise of stock options		211			3,669			—			—			3,669
Issuance of common stock for employee stock purchase plan		23			700			—			—			700
Foreign currency translation adjustment		—			—			(42	)		—			(42	)	$	(42	)
Issuance of common stock under deferred stock plan		—			275			—			—			275
Dividends declared		—			—			—			(6,326	)		(6,326	)
Share-based compensation		—			1,538			—			—			1,538
Net earnings		—			—			—			32,112			32,112			32,112
Comprehensive income		—			—			—			—			—		$	32,070
Balance at September 29, 2007		18,702		$	47,280		$	(2,006	)	$	250,308		$	295,582
Cumulative effective of change in accounting for income taxes		—			—			—			(925	)		(925	)
Issuance of common stock upon exercise of stock options		150			2,029			—			—			2,029
Issuance of common stock for employee stock purchase plan		31			782			—			—			782
Foreign currency translation adjustment		—			—			3			—			3		$	3
Issuance of common stock under deferred stock plan		—			388			—			—			388
Dividends declared		—			—			—			(6,925)			(6,925	)
Share-based compensation		—			1,475			—			—			1,475
Repurchase of common stock		(135	)		(3,539	)		—			—			(3,539)
Net earnings		—			—			—			27,908			27,908			27,908
Comprehensive income		—			—			—			—			—		$	27,911
Balance at September 27, 2008		18,748		$	48,415		$	(2,003	)	$	270,366		$	316,778

All share amounts reflect the 2-for-1 stock split effective January 5, 2006.

The accompanying notes are an integral part of these statements.

F-5

J & J SNACK FOODS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Fiscal year ended
	September 27,			September 29,			September 30,
	2008			2007			2006
	(52 weeks)			(52 weeks)			(53 weeks)
Operating activities:
Net earnings	$	27,908		$	32,112		$	29,450
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization of fixed assets		22,181			22,451			22,848
Amortization of intangibles and deferred costs		5,289			4,557			1,760
(Gains) losses from disposals and impairment of property & equipment		(174	)		(49	)		1,062
Other		—			(150	)		—
Share-based compensation		1,851			1,740			1,586
Deferred income taxes		3,446			557			(96	)
Changes in assets and liabilities, net of effects from purchase of companies:
Increase in accounts receivable		(4,701	)		(569	)		(4,223	)
Increase in inventories		(2,448	)		(5,722	)		(2,160	)
Increase in prepaid expenses and other		(537	)		(65	)		(167	)
Increase in accounts payable and accrued liabilities		2,082			2,981			4,905
Net cash provided by operating activities		54,897			57,843			54,965

Investing activities:
Purchases of property, plant and equipment		(22,781	)		(22,765	)		(19,739	)
Payments for purchases of companies, net of cash acquired		—			(52,747	)		(26,264	)
Purchase of marketable securities		(12,970	)		(60,875	)		(40,825	)
Proceeds from sales of marketable securities		6,500			78,882			36,050
Proceeds from redemption of auction market preferred stock		10,000			—			—
Proceeds from disposal of property and equipment		932			592			1,046
Other		(535	)		(921	)		(897	)
Net cash used in investing activities		(18,854	)		(57,834	)		(50,629	)

Financing activities:
Payments to repurchase common stock		(3,539	)		—			—
Proceeds from issuance of common stock		2,811			4,369			2,809
Payments of cash dividend		(6,781	)		(6,123	)		(5,273	)
Payments on capitalized lease obligations		(91	)		(15	)		—
Net cash used in financing activities		(7,600	)		(1,769	)		(2,464	)
Effect of exchange rate on cash and cash equivalents		3			(42	)		(46	)
Net increase (decrease) in cash and cash equivalents		28,446			(1,802	)		1,826
Cash and cash equivalents at beginning of year		15,819			17,621			15,795
Cash and cash equivalents at end of year	$	44,265		$	15,819		$	17,621

The accompanying notes are an integral part of these statements.

F-6

J & J SNACK FOODS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

J & J Snack Foods Corp. and Subsidiaries (the Company) manufactures, markets and distributes a variety of nutritional snack foods and beverages to the food service and retail supermarket industries. A summary of the significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows.

1. Principles of Consolidation

The consolidated financial statements include the accounts of J & J Snack Foods Corp. and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated in the consolidated financial statements.

2. Revenue Recognition

We recognize revenue from Food Service, Retail Supermarkets, The Restaurant Group and Frozen Beverage products at the time the products are shipped to third parties. When we perform services under service contracts for frozen beverage dispenser machines, revenue is recognized upon the completion of the services on specified machines. We provide an allowance for doubtful receivables after taking into consideration historical experience and other factors.

We follow EITF Issue 00-10, “Accounting for Shipping and Handling Fees and Costs” (Issue 00-10). Issue 00-10 requires that all amounts billed to customers related to shipping and handling should be classified as revenues. Our product costs include amounts for shipping and handling, therefore, we charge our customers shipping and handling fees at the time the products are shipped or when services are performed. The cost of shipping products to the customer is recognized at the time the products are shipped to the customer and our policy is to classify them as Distribution expenses. The cost of shipping products to the customer classified as Distribution expenses was $52,609,000, $48,945,000 and $45,331,000 for the fiscal years ended 2008, 2007 and 2006, respectively.

Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101) and Staff Accounting Bulletin No. 104, Revenue Recognition, corrected copy (SAB 104) address certain criteria for revenue recognition. SAB 101 and SAB 104 outline the criteria that must be met to recognize revenue and provides guidance for disclosures related to revenue recognition policies. Our revenue recognition policies comply with the guidance contained in SABs 101 and 104.

We also sell service contracts covering frozen beverage machines sold. The terms of coverage range between 1 and 60 months. We record deferred income on service contracts which is amortized by the straight-line method over the term of the contracts.

During the years ended September 27, 2008, September 29, 2007 and September 30, 2006, we sold $11,881,000, $9,000,000 and $6,000,000, respectively, of service contracts related to our frozen beverage machines. At September 27, 2008 and September 29, 2007, deferred income on service contracts was $1,130,000 and $1,160,000, respectively, of which $144,000 and $126,000 is included in other long-term liabilities as of September 27, 2008 and September 29, 2007, respectively and the balance is reflected as short-term and included in accrued liabilities on the consolidated balance sheet. Service contract income of $11,911,000, $9,612,000 and $5,883,000 was recognized for the fiscal years ended 2008, 2007 and 2006, respectively.

3. Foreign Currency

Assets and liabilities in foreign currencies are translated into U.S. dollars at the rate of exchange prevailing at the balance sheet date. Revenues and expenses are translated at the average rate of exchange for the period. The cumulative translation adjustment is recorded as a separate component of stockholders’ equity and changes to such are included in comprehensive income.

F-7

J & J SNACK FOODS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE A — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

4. Use of Estimates

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

5. Cash Equivalents

Cash equivalents are short-term, highly liquid investments with original maturities of three months or less.

6. Concentrations of Credit Risk and Accounts Receivable

We maintain cash balances at financial institutions located in various states. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $250,000. We customarily maintain cash balances in excess of these insurance limits.

Other financial instruments that could potentially subject us to concentrations of credit risk are trade accounts receivable; however, such risks are limited due to the large number of customers comprising our customer base and their dispersion across geographic regions. We usually have 2 to 3 customers with accounts receivable balances of between $1,500,000 to $6,000,000.

The majority of our accounts receivable are due from trade customers. Credit is extended based on evaluation of our customers’ financial condition and collateral is not required. Accounts receivable payment terms vary and are stated in the financial statements at amounts due from customers net of an allowance for doubtful accounts. Accounts outstanding longer than the payment terms are considered past due. We determine our allowance by considering a number of factors, including the length of time trade accounts receivable are past due, our previous loss history, customers’ current ability to pay their obligations to us, and the condition of the general economy and the industry as a whole. We write off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts.

7. Inventories

Inventories are valued at the lower of cost (determined by the first-in, first-out method) or market.

We follow FASB Statement 151, “Inventory Costs, an amendment of Accounting Research Bulletin (ARB) No. 43, Chapter 4,” (Statement 151).

Statement 151 retains the general principle of ARB 43, Chapter 4, “Inventory Pricing”, that inventories are presumed to be stated at cost; however, it amends ARB 43 to clarify that

	●	abnormal amounts of idle facilities, freight, handling costs, and spoilage should be recognized as charges of the current period

	●	allocation of fixed production overheads to inventories should be based on the normal capacity of the production facilities.

Statement 151 defines normal capacity as the production expected to be achieved over a number of periods or seasons under normal circumstances, taking into account the loss of capacity resulting from planned maintenance. The Board concluded that normal capacity refers to a range of production levels that will vary based on

F-8

J & J SNACK FOODS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE A — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

business- and industry-specific factors. Accordingly, an entity will have to use judgment to determine when production is outside the range of expected variation in production (either abnormally low or abnormally high). In periods of abnormally low production (for example, periods in which there is significantly lower demand, labor and material shortages exist, or there is unplanned equipment downtime) the amount of fixed overhead allocated to each unit of production should not be increased. However, in periods of abnormally high production the amount of fixed overhead allocated to each unit of production is decreased to assure inventories are not measured above cost.

We review for slow moving and obsolete inventory and a reserve is established for the value of inventory that we estimate will not be used. At September 27, 2008 and September 29, 2007, our reserve for inventory was $3,817,000 and $2,864,000, respectively.

8. Investment Securities

We account for our investment securities in accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” (SFAS No. 115). This standard requires investments in securities to be classified in one of three categories: held to maturity, trading, or available for sale; however, we have classified our auction market preferred stock separately on our balance sheet because of the failure of the auction market beginning in February 2008. The balance of our investment portfolio consists solely of investments classified as held to maturity and is accounted for as such in accordance with SFAS No. 115. See Note C for further information on our holdings of auction market preferred stock.

9. Depreciation and Amortization

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 arising from acquisitions are amortized by the straight-line method over periods ranging from 4 to 20 years.

We follow SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” (SFAS No. 144) and SFAS No. 142, “Goodwill and Other Intangible Assets,” (SFAS No. 142). We review our equipment and buildings to ensure that they provide economic benefit. We recorded an impairment charge of $1,193,000 in 2006 in the food service segment for the writedown of robotic packaging equipment based on a determination made during the year that we would not be able to make the equipment work as intended. We use market value tests and discounted cash flow models to test goodwill and other intangible assets for impairment. These assets are reviewed for impairment annually or more frequently as a triggering event, such as the loss of a major customer, might occur.

10. Fair Value of Financial Instruments

The carrying value of our short-term financial instruments, such as accounts receivables and accounts payable, approximate their fair values, based on the short-term maturities of these instruments.

11. Income Taxes

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.

In June 2006, the FASB issued Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 (SFAS 109).

F-9

J & J SNACK FOODS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE A — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with SFAS 109. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

FIN 48 also provides guidance on financial reporting and classification of differences between tax positions taken in a tax return and amounts recognized in the financial statements.

We adopted FIN 48 on September 30, 2007, the first day of the 2008 fiscal year, and, as a result, recognized a $925,000 decrease to opening retained earnings from the cumulative effect of adoption. As of September 27, 2008, the total amount of gross unrecognized tax benefits is $1,735,000, 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 September 27, 2008, the Company had $588,000 of accrued interest and penalties. During the year ended September 27, 2008, we recognized $6,000 of penalties and interest. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	(in thousands)
Balance at September 30, 2007	$	1,925
Additions based on tax positions related to the current year		—
Additions for tax positions of prior years		190
Reductions for tax positions of prior years		(338	)
Settlements		(42	)
Balance at September 27, 2008	$	1,735

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.

12. Earnings Per Common Share

We follow SFAS No. 128, “Earnings Per Share” (EPS). Basic 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 (all share amounts reflect the 2-for-1 stock split effective January 5, 2006):

	Fiscal Year Ended September 27, 2008
	Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount
	(in thousands, except per share amounts)
Earnings Per Basic Share
Net Income available to common stockholders	$	27,908		18,770	$	1.49

Effect of Dilutive Securities
Options		—		238		(.02	)

Earnings Per Diluted Share
Net Income available to common stockholders plus assumed conversions	$	27,908		19,008	$	1.47

273,471 anti-dilutive shares have been excluded in the computation of 2008 diluted EPS because the options’ exercise price is greater than the average market price of the common stock.

F-10

J & J SNACK FOODS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE A — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

	Fiscal Year Ended September 29, 2007
	Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount
	(in thousands, except per share amounts)
Earnings Per Basic Share
Net Income available to common stockholders	$	32,112		18,635	$	1.72

Effect of Dilutive Securities
Options		—		370		(.03	)

Earnings Per Diluted Share
Net Income available to common stockholders plus assumed conversions	$	32,112		19,005	$	1.69

128,200 anti-dilutive shares have been excluded in the computation of 2007 diluted EPS because the options’ exercise price is greater than the average market price of the common stock.

	Fiscal Year Ended September 30, 2006
	Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount
	(in thousands, except per share amounts)
Earnings Per Basic Share
Net Income available to common stockholders	$	29,450		18,421	$	1.60

Effect of Dilutive Securities
Options		—		386		(.03	)

Earnings Per Diluted Share
Net Income available to common stockholders plus assumed conversions	$	29,450		18,807	$	1.57

500 anti-dilutive shares have been excluded in the computation of 2006 diluted EPS because the options’ exercise price is greater than the average market price of the common stock.

13. Accounting for Stock-Based Compensation

The Company follows FASB Statement No. 123(R), “Share-Based Payment”. Statement 123(R) requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost is measured based on the fair value of the equity or liability instruments issued.

Statement 123(R) covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans.

In addition to the accounting standard that sets forth the financial reporting objectives and related accounting principles, Statement 123(R) includes an appendix of implementation guidance that provides expanded guidance on measuring the fair value of share-based payment awards.

At September 27, 2008, the Company has three stock-based employee compensation plans. Share-based compensation was recognized as follows:

	Fiscal Year Ended
	September 27,		September 29,		September 30,
	2008		2007		2006
	(in thousands, except per share amounts)
Stock Options	$	1,019	$	833	$	823
Stock purchase plan		137		146		165
Deferred stock issued to outside directors		138		138		173
Restricted stock issued to an employee		100		31		—
	$	1,394	$	1,148	$	1,161
Per diluted share	$	.07	$	.06	$	.06
The above compensation is net of tax benefits	$	457	$	592	$	425

F-11

J & J SNACK FOODS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE A — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

At September 27, 2008, the Company has unrecognized compensation expense of approximately $1.6 million to be recognized over the next three fiscal years.

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 2008, 2007 and 2006: expected volatility of 25.2% for fiscal year 2008, 27.4% for year 2007 and 34.2% for year 2006; weighted average risk-free interest rates of 3.60%, 4.57% and 4.41%; dividend rate of 1.1%, .9% and 1% and expected lives ranging between 5 and 10 years for all years. Expected forfeiture rates of 15%, 15% and 18% were used for fiscal years 2008, 2007 and 2006, respectively.

Expected volatility is based on the historical volatility of the price of our common shares over the past 50 to 53 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.

14. Advertising Costs

Advertising costs are expensed as incurred. Total advertising expense was $1,666,000, $4,084,000, and $1,589,000 for the fiscal years 2008, 2007 and 2006, respectively.

15. Commodity Price Risk Management

Our most significant raw material requirements include flour, shortening, corn syrup, sugar, juice, cheese, chocolate, and a variety of nuts. We attempt to minimize the effect of future price fluctuations related to the purchase of raw materials primarily through forward purchasing to cover future manufacturing requirements, generally for periods from 1 to 12 months. As of September 27, 2008, we have approximately $44,000,000 of such commitments. Futures contracts are not used in combination with forward purchasing of these raw materials. Our procurement practices are intended to reduce the risk of future price increases, but also may potentially limit the ability to benefit from possible price decreases. Our policy is to recognize estimated losses on purchase commitments when they occur. At each of the last three fiscal year ends, we did not have any material losses on our purchase commitments.

16. Research and Development Costs

Research and development costs are expensed as incurred. Total research and development expense was $571,000, $529,000 and $558,000 for the fiscal years 2008, 2007 and 2006, respectively.

17. Recent Accounting Pronouncements

In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” SAB 108 was issued to provide consistency between how registrants quantify financial statement misstatements. We did not record any adjustment upon adoption in 2007 due to immateriality.

In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements” (FAS 157). FAS 157 establishes a common definition for how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under generally accepted accounting principles. The statement is effective for our 2009 fiscal year. We are currently evaluating the provisions of FAS 157 to determine its impact on our financial statements.

F-12

J & J SNACK FOODS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE A — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

On February 15, 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” (SFAS 159). The Fair value option established by SFAS 159 permits, but does not require, all entities to choose to measure eligible items at fair value at specified election dates. An entity would report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS 159 is effective for our 2009 fiscal year. We are currently assessing what the impact of the adoption of this standard would be on the Company’s financial position and/or results of operations.

In December 2007, the FASB issued Statement 141 (revised 2007), “Business Combinations” (Statement 141R). When effective, Statement 141R will replace existing Statement 141 in its entirety.

Statement 141R is effective for our 2010 fiscal year. Both early adoption and retrospective application are prohibited.

In December 2007, The FASB issued Statement 160, “Noncontrolling Interests in Consolidated Financial Statements: an amendment of ARB No. 51.” Statement 160 replaces the existing minority-interest provisions of Accounting Research Bulletin (ARB) 51, “Consolidated Financial Statements,” by defining a new term—noncontrolling interests—to replace what were previously called minority interests.

Statement 160 establishes noncontrolling interests as a component of the equity of a consolidated entity.

The underlying principle of the new standard is that both the controlling interest and the noncontrolling interests are part of the equity of a single economic entity: the consolidated reporting entity.

Statement 160 is effective for our 2010 fiscal year.

Early adoption is prohibited. A parent company is prohibited from changing the amounts recognized for acquisitions or dispositions of noncontrolling interests or for a loss of control of a subsidiary in previous periods. However, the parent must apply the disclosure and presentation provisions of Statement 160 retrospectively for all periods presented.

In August 2008, the FASB issued FASB Staff Position (FSP) FAS 142-3, “Determination of the Useful Life of Intangible Assets.” The FSP revises the factors that a company should consider to develop renewal or extension assumptions used in estimating the useful life of a recognized intangible asset. The new guidance will apply to all intangible assets acquired after the FSP’s effective date. The FSP also requires new disclosures for all intangible assets recognized as of, and subsequent to, the FSP’s effective date.

The underlying purpose of the FSP is to improve the consistency between the period of expected cash flows used to measure the fair value of a recognized intangible asset and the useful life of an intangible asset as determined under FASB Statement 142, “Goodwill and Other Intangible Assets.”

FSP FAS 142-3 is effective for our 2010 fiscal year. Early adoption is prohibited.

18. Reclassifications

Certain prior year financial statement amounts have been reclassified to be consistent with the presentation for the current year.

NOTE B — ACQUISITIONS

F-13

J & J SNACK FOODS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE B — ACQUISITIONS (Continued)

On March 17, 2005, we acquired all of the assets of Snackworks LLC, d/b/a Bavarian Brothers, a manufacturer of soft pretzels headquartered in Rancho Cucamonga, California for $14.8 million plus approximately $600,000 for inventory. Snackworks operated production facilities in California and Chambersburg, Pennsylvania and markets its products under the brand names SERIOUSLY TWISTED!, BAVARIAN BROTHERS and CINNAPRETZEL. Snackworks sells throughout the continental United States primarily to mass merchandisers and theatres.

On January 31, 2006, we acquired the stock of ICEE of Hawaii. ICEE of Hawaii, headquartered in Waipahu, Hawaii, distributes ICEE frozen beverages and related products throughout the Hawaiian islands. Annual sales are approximately $2.3 million.

	(in thousands)
Working Capital	$	4,264
Property, plant and equipment		25
Prepaid license		1,400
Trade names		7,460
Customer relationships		6,180
Covenant not to compete		148
Goodwill		2,987
	$	22,464

On January 9, 2007 we acquired the assets of Hom/Ade Foods, Inc., a manufacturer and distributor of biscuits and dumplings sold under the MARY B’S and private label store brands to the supermarket industry. Hom/Ade is headquartered in Pensacola, Florida.

On January 31, 2007 we acquired the assets of Radar Inc., a manufacturer and seller of fig and fruit bars selling its products under the brand DADDY RAY’S. Headquartered and with its manufacturing facility in Moscow Mills, Missouri (outside of St. Louis), Radar, Inc. had annual sales of approximately $23 million dollars selling to the retail grocery segment and mass merchandisers, both branded and private label.

On April 2, 2007, we acquired the WHOLE FRUIT Sorbet and FRUIT-A-FREEZE Fruit Bar brands, along with related assets including a manufacturing facility located in Norwalk, California which sells primarily to the supermarket industry.

On June 25, 2007, we acquired the assets of an ICEE distributor in Kansas with annual sales of less than $1 million.

The allocation of the purchase prices for the Hom/Ade and Radar acquisitions and other acquisitions which were made during the 2007 fiscal year is as follows:

	Hom/Ade		Radar		Other
			(in thousands)
Working Capital	$	1,410	$	1,284	$	989
Property, plant & equipment		233		5,750		1,442
Trade Names		6,220		1,960		3,086
Customer Relationships		17,250		10,730		58
Covenant not to Compete		301		109		—
Goodwill		476		1,287		603
	$	25,890	$	21,120	$	6,178

F-14

J & J SNACK FOODS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE B — ACQUISITIONS (Continued)

Included in the purchase price for Hom/Ade is a pre-acquisition contingency which was settled in the first quarter of fiscal year 2008 for approximately $1.9 million.

The following pro forma information discloses net sales, net earnings and earnings per share for the three fiscal years ended September 27, 2008 including the sales and net earnings of Hom/Ade, Radar and Slush Puppie for all periods.

The impact of the other acquisitions made during the periods on net sales, net earnings and earnings per share was not significant.

	Pro Forma Fiscal year ended
	September 27,		September 29,		September 30,
	2008		2007		2006
	(52 weeks)		(52 weeks)		(53 weeks)
	(in thousands except per share information)
Net Sales	$	629,359	$	581,024	$	566,297
Net Earnings	$	27,908	$	33,235	$	33,819
Earnings per diluted share	$	1.47	$	1.75	$	1.80
Earnings per basic share	$	1.49	$	1.78	$	1.84

These acquisitions were accounted for under the purchase method of accounting, and their operations are included in the accompanying consolidated financial statements from their acquisition dates.

NOTE C — INVESTMENT SECURITIES

We have classified our investment securities as marketable securities held to maturity and auction market preferred stock (“AMPS”).

The amortized cost, unrealized gains and losses, and fair market values of our marketable securities held to maturity at September 27, 2008 are summarized as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Market Value
	(in thousands)
Certificates of Deposit	$	2,470	$	—	$	6	$	2,464
	$	2,470	$	—	$	6	$	2,464

All of the certificates of deposit are within the FDIC limits for insurance coverage.

The amortized cost, unrealized gains and losses, and fair market values of our auction market preferred stock at September 27, 2008 are summarized as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Market Value
	(in thousands)
Auction Market Preferred Stock Equity Securities	$	35,200	$	—	$	—	$	35,200
	$	35,200	$	—	$	—	$	35,200

F-15

J & J SNACK FOODS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE C — INVESTMENT SECURITIES (Continued)

The amortized cost, unrealized gains and losses, and fair market values of our auction market preferred stock at September 29, 2007 are summarized as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Market Value
	(in thousands)
Auction Market Preferred Stock Equity Securities	$	41,200	$	—	$	—	$	41,200
	$	41,200	$	—	$	—	$	41,200

At September 27, 2008, we held $35.2 million of AMPS which are valued at par, our cost; $14.0 million are classified as current assets and $21.2 million are classified as long-term assets on our balance sheet. On September 27, 2007, we held $41.2 million of AMPS which were also valued at par but which were all classified as current assets.

The AMPS we own are senior equity securities of closed-end funds and have priority over the fund’s common shares as to distribution of assets and dividends, as described in each fund’s prospectus.

Under normal auction market conditions, dividends on the AMPS for each dividend period (generally 7 to 49 days) are set at a rate determined through an auction process that brings together bidders who seek to buy AMPS and holders of AMPS who seek to sell. Investors and potential investors typically had purchased the AMPS in an auction by submitting orders to a broker-dealer, typically, an investment bank. However, beginning in mid February 2008, the auction process has not been supported by broker-dealers and auctions have failed and continue to fail. In the case of a failed auction, the dividends continue to be paid at the applicable “failure” rate for each security until an auction can establish a market clearing rate. For most of the funds we own, the specified “failure” rate is the current applicable LIBOR rate plus 125 basis points or 125% of the rate, whichever is greater. Other of the funds we own have different formulas which produce comparable dividend rates.

The assets of closed-end funds, which are valued on a daily basis, serve as the collateral for issuance of the AMPS. The AMPS must meet certain specified asset coverage tests, which include a requirement set forth under the Investment Company Act of 1940 that closed-end funds maintain asset coverage of at least 200% with respect to the AMPS and any other outstanding senior securities; i.e. closed-end funds must have at least $2 of collateral for every $1 of AMPS issued. If the funds don’t meet the asset coverage tests, then the fund must redeem them. All the $35.2 million of securities held by J & J is AAA rated. The collateral held by the funds are generally municipal securities or common and preferred stock of public corporations.

Presently, we are unable to sell the AMPS and we do not believe the auction process for AMPS will be reestablished in the near term, if ever. However, on August 21, 2008, Merrill Lynch announced a plan to purchase, at par, AMPS held by J & J and other of its clients. Under this plan, we can sell our AMPS to Merrill Lynch at anytime between January 2, 2009 and January 15, 2010. Additionally, issuers of many of the closed-end funds who have issued AMPS have made public announcements of their intent to work toward redeeming the securities and a portion of the type of security we own have been redeemed by the issuers since the auction process failed. Considering this, the Merrill Lynch plan, and that the AMPS are collateralized and continue to pay dividends, we have not recorded an impairment.

We will continue to assess the need to record an impairment on a quarterly basis.

Redemption of our AMPS subsequent to the failure of the auction process was $10,000,000, our carrying value, in the year ended September 27, 2008. Subsequent to September 27, 2008 and prior to the filing of this Form 10-K, approximately $14,000,000 of our AMPS have been redeemed at our carrying value and are therefore classified as current assets on our September 27, 2008 balance sheet.

Proceeds from the sale and redemption of AMPS were $16,500,000 and $78,882,000 in the periods ended September 27, 2008, and September 29, 2007, respectively, with no gain or loss recorded. We use the specific identification method to determine the cost of securities sold.

F-16

J & J SNACK FOODS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE D — INVENTORIES

Inventories consist of the following:

	September 27,		September 29,
	2008		2007
	(in thousands)
Finished goods	$	23,512	$	23,207
Raw materials		7,658		6,703
Packaging materials		5,405		4,833
Equipment parts and other		12,520		11,856
	$	49,095	$	46,599

Inventory is presented net of an allowance for obsolescence of $3,817,000 and $2,864,000 as of fiscal year ends 2008 and 2007, respectively.

NOTE E — PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

	September 27,		September 29,		Estimated
	2008		2007		Useful Lives
	(in thousands)
Land	$	1,416	$	1,316		—
Buildings		8,672		7,751	15-39.5 years
Plant machinery and equipment		124,591		117,468	5-20 years
Marketing equipment		195,878		191,778	5-7 years
Transportation equipment		2,878		2,810	5 years
Office equipment		10,820		10,020	3-5 years
Improvements		17,694		17,556	5-20 years
Construction in progress		2,215		4,130		—
	$	364,164	$	352,829

F-17

J & J SNACK FOODS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE F — GOODWILL AND INTANGIBLE ASSETS

Our four reporting units, which are also reportable segments, are Food Service, Retail Supermarket, The Restaurant Group and Frozen Beverages.

The carrying amount of acquired intangible assets for the reportable segments are as follows:

	September 27, 2008				September 29, 2007
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
	(in thousands)
Food Service
Indefinite lived intangible assets
Trade Names	$	8,180	$	—	$	8,180	$	—

Amortized intangible assets
Non compete agreements		435		215		435		133
Customer relationships		33,287		8,087		33,287		4,472
Licenses and rights		3,606		1,835		3,606		1,609
	$	45,508	$	10,137	$	45,508	$	6,214
Retail Supermarket
Indefinite lived intangible assets
Trade Names	$	2,731	$	—	$	2,731	$	—

The Restaurant Group

Amortized intangible assets
Licenses and rights	$	—	$	—	$	—	$	—

Frozen Beverages
Indefinite lived intangible assets
Trade Names	$	9,315	$	—	$	9,315	$	—

Amortized intangible assets
Non compete agreements		148		99		148		56
Customer relationships		6,478		1,548		6,478		884
Licenses and rights		1,601		364		1,601		294
	$	17,542	$	2,011	$	17,542	$	1,234

The gross carrying amount of intangible assets is determined by applying a discounted cash flow model to the future sales and earnings associated with each intangible asset or is set by contract cost. The amortization period used for definite lived intangible assets is set by contract period or by the period over which the bulk of the discounted cash flow is expected to be generated. We currently believe that we will receive the benefit from the use of the trade names classified as indefinite lived intangible assets indefinitely and they are therefore not amortized.

Licenses and rights are being amortized by the straight-line method over periods ranging from 3 to 20 years and amortization expense is reflected throughout operating expenses. In January 2006, intangible assets of $1,746,000 were acquired in the ICEE of Hawaii acquisition and a product license agreement for $100,000 was entered into by the food service segment. In May 2006, intangible assets of $15,188,000 were acquired in the SLUSH PUPPIE acquisition.

F-18

J & J SNACK FOODS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE F — GOODWILL AND INTANGIBLE ASSETS (Continued)

In January 2007, intangible assets of $23,771,000 and $12,799,000 were acquired in the Hom/Ade Foods and DADDY RAY’S acquisitions, respectively. In April 2007, intangible assets of $2,731,000 were acquired in the WHOLE FRUIT and FRUIT-A-FREEZE acquisitions and $413,000 was acquired in the Kansas ICEE acquisition in June 2007.

Aggregate amortization expense of intangible assets for the fiscal years 2008, 2007 and 2006 was $4,700,000, $3,974,000 and $1,408,000.

Estimated amortization expense for the next five fiscal years is approximately $4,500,000 in 2009 and 2010, $4,100,000 in 2011, $3,800,000 in 2012 and $3,700,000 in 2013. The weighted average amortization period of the intangible assets is 10.3 years.

Goodwill

The carrying amounts of goodwill for the reportable segments are as follows:

	Food Service		Retail Supermarkets		Restaurant Group		Frozen Beverages		Total
	(in thousands)
Balance at September 27, 2008	$	23,988	$	—	$	386	$	35,940	$	60,314
Balance at September 29, 2007	$	23,988	$	—	$	386	$	35,940	$	60,314

Goodwill of $839,000 in the food service segment was acquired in an August 2006 acquisition. Goodwill of $500,000 in the frozen beverages segment was acquired in the January 2006 acquisition of ICEE of Hawaii. Goodwill of $2,987,000 in the frozen beverages segment was acquired in the May 2006 acquisition of the SLUSH PUPPIE branded business. Goodwill of $1,763,000 was acquired in the January 2007 acquisitions of Hom/Ade Foods and DADDY RAY’S and $603,000 was acquired in the June 2007 Kansas ICEE acquisition.

The carrying value of goodwill is determined based on the excess of the purchase price of acquisitions over the estimated fair value of tangible and intangible net assets. Goodwill is not amortized but is evaluated annually by management for impairment. There were no impairment charges in 2008, 2007 or 2006.

NOTE G — LONG-TERM DEBT

In December 2006, we entered into an amended and restated loan agreement with our existing banks which provides for up to a $50,000,000 revolving credit facility repayable in December 2011, with the availability of repayments without penalty. The agreement contains restrictive covenants and requires commitment fees in accordance with standard banking practice. As of September 27, 2008 and September 29, 2007, there were no outstanding balances under the facility.

NOTE H — OBLIGATIONS UNDER CAPITAL LEASES

Obligations under capital leases consist of the following:

	September 27,		September 29,
	2008		2007
	(in thousands)
Capital lease obligations, with interest at 2.6%, payable in monthly installments of $8,700, through August 2013	$	474	$	565
Less current portion		93		91
	$	381	$	474

F-19

J & J SNACK FOODS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE I — INCOME TAXES

Income tax expense (benefit) is as follows:

	Fiscal year ended
	September 27,			September 29,		September 30,
	2008			2007		2006
	(in thousands)
Current
U.S. Federal	$	11,417		$	15,485	$	15,982
Foreign		844			423		233
State		2,270			2,581		2,503
		14,531			18,489		18,718

Deferred
U.S. Federal		2,983			474		(82	)
Foreign		(168	)		—		—
State		631			83		(14	)
		3,446			557		(96	)
	$	17,977		$	19,046	$	18,622

The provisions for income taxes differ from the amounts computed by applying the statutory federal income tax rate of approximately 35% to earnings before income taxes for the following reasons:

	Fiscal year ended
	September 27,		September 29,			September 30,
	2008		2007			2006
	(in thousands)
Income taxes at statutory rates	$	16,059	$	17,905		$	16,825
Increase (decrease) in taxes resulting from:
State income taxes, net of federal income tax benefit		1,918		1,819			1,663
Other, net		—		(678	)		134
	$	17,977	$	19,046		$	18,622

Deferred tax assets and liabilities consist of the following:

	September 27,		September 29,		September 30,
	2008		2007		2006
	(in thousands)
Deferred tax assets
Vacation accrual	$	1,117	$	975	$	908
Insurance accrual		2,634		2,795		2,883
Deferred income		105		103		138
Allowances		1,865		1,573		1,326
Inventory capitalization		519		459		479
Share-based compensation		896		597		71
Other, net		104		177		371
		7,240		6,679		6,176

Deferred tax liabilities
Amortization of goodwill and other intangible assets		11,899		10,087		8,758
Depreciation of property and equipment		14,818		12,614		12,874
Other, net		24		33		42
		26,741		22,734		21,674
	$	19,501	$	16,055	$	15,498

F-20

J & J SNACK FOODS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE J — COMMITMENTS

1. Lease Commitments

The following is a summary of approximate future minimum rental commitments for non-cancelable operating leases with terms of more than one year as of September 27, 2008:

	Plants and Offices		Equipment		Total
	(in thousands)
2009	$	5,216	$	4,500	$	9,716
2010		4,517		3,331		7,848
2011		3,590		2,688		6,278
2012		2,871		1,272		4,143
2013		2,375		50		2,425
2014 and thereafter		7,462		—		7,462
	$	26,031	$	11,841	$	37,872

Total rent expense was $12,907,000, $13,803,000 and $13,418,000 for fiscal years 2008, 2007 and 2006, respectively.

2. Other Commitments

We are a party to litigation which has arisen in the normal course of business which management currently believes will not have a material adverse effect on our financial condition or results of operations.

We self-insure, up to loss limits, certain insurable risks such as worker’s compensation and automobile liability claims. Accruals for claims under our self-insurance program are recorded on a claims incurred basis. Our total recorded liability for all years’ claims incurred but not yet paid was $6,400,000 and $6,800,000 at September 27, 2008 and September 29, 2007, respectively In connection with the self-insurance agreements, we customarily enter into letters of credit arrangements with our insurers. At September 27, 2008 and September 29, 2007, we had outstanding letters of credit totaling $9,475,000 and $9,595,000, respectively.

NOTE K — CAPITAL STOCK

In our 2008 fiscal year ended September 27, 2008, we purchased and retired 135,124 shares of our common stock at a cost of $3,539,000 under a million share buyback authorization approved by the Company’s Board of Directors in February 2008. The Company did not repurchase any of its common stock in fiscal years 2007 and 2006.

NOTE L — STOCK OPTIONS

We have a Stock Option Plan (the “Plan”). Pursuant to the Plan, stock options may be granted to officers and our key employees which qualify as incentive stock options as well as stock options which are nonqualified. The exercise price of incentive stock options is at least the fair market value of the common stock on the date of grant. The exercise price for nonqualified options is determined by a committee of the Board of Directors. The options are generally exercisable after three years and expire no later than ten years from date of grant. There were 1,400,000 shares reserved under the Plan; options for 667,000 shares remain unissued as of September 27, 2008. There are options that were issued under an option plan that has since expired that are still outstanding.

We have an Employee Stock Purchase Plan (“ESPP”) whereby employees purchase stock by making contributions through payroll deductions for six month periods. The purchase price of the stock is 85% of the lower of the market price of the stock at the beginning of the six-month period or the end of the six-month period. In fiscal years 2008, 2007 and 2006 employees purchased 31,366, 23,140 and 23,205 shares at average purchase prices of $24.93, $30.22 and $23.95, respectively. ESPP expense of $137,000, $146,000 and $165,000 was recognized for fiscal years 2008, 2007 and 2006, respectively.

F-21

J & J SNACK FOODS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE L — STOCK OPTIONS (Continued)

A summary of the status of our stock option plans as of fiscal years 2008, 2007 and 2006 and the changes during the years ended on those dates is represented below:

	Incentive Stock Options					Nonqualified Stock Options
	Stock Options Outstanding			Weighted- Average Exercise Price		Stock Options Outstanding			Weighted- Average Exercise Price
Balance, September 25, 2005		749,488			15.28		520,354			11.04
Granted		135,671			29.73		40,000			30.44
Exercised		(111,224	)		13.75		(68,000	)		6.13
Cancelled		(44,000	)		19.70		—

Balance, September 30, 2006		729,935			17.93		492,354			13.30
Granted		114,700			41.45		35,000			36.49
Exercised		(151,130	)		17.45		(68,000	)		6.19
Cancelled		(20,100	)		23.70		—

Balance, September 29, 2007		673,405			21.87		459,354			16.12
Granted		96,345			33.22		20,000			34.17
Exercised		(111,768	)		16.57		(77,000	)		9.66
Cancelled		(44,150	)		26.36		(5,000	)		38.54

Balance, September 27, 2008		613,832		$	24.29		397,354		$	18.00
Exercisable Options, September 27, 2008		303,366					307,354

The weighted-average fair value of incentive options granted during fiscal years ended September 27, 2008, September 29, 2007 and September 30, 2006 was $7.99, $11.98 and $9.48, respectively. The weighted-average fair value of nonqualified stock options granted during the fiscal years ended September 27, 2008, September 29, 2007 and September 30, 2006 was $15.21, $14.29 and $14.79, respectively. The total instrinsic value of stock options exercised was $3.2 million, $5.4 million and $3.8 million in fiscal years 2008, 2007 and 2006, respectively.

The following table summarizes information about incentive stock options outstanding at September 27, 2008:

	Options Outstanding					Options Exercisable
Range of Exercise Prices	Number Outstanding at September 27, 2008		Weighted- Average Remaining Contractual Life	Weighted- Average Exercise Price		Number Exercisable at September 27, 2008		Weighted- Average Exercise Price
$6.38 – $7.94		69,000	2.0 years	$	6.51		69,000	$	6.51
$10.60 – $10.60		112,632	2.8 years	$	10.60		112,632	$	10.60
$19.39 – $27.45		122,234	1.0 years	$	20.68		121,734	$	20.65
$29.28 – $41.60		309,966	3.2 years	$	34.65		—	$	—
		613,832					303,366

F-22

The following table summarizes information about nonqualified stock options outstanding at September 27, 2008:

	Options Outstanding					Options Exercisable
Range of Exercise Prices	Number Outstanding at September 27, 2008		Weighted- Average Remaining Contractual Life	Weighted- Average Exercise Price		Number Exercisable at September 27, 2008		Weighted- Average Exercise Price
$7.97 – $10.88		195,000	1.6 years	$	9.71		195,000	$	9.71
$19.77 – $27.42		112,354	3.4 years	$	20.22		112,354	$	20.22
$29.78 – $38.81		90,000	8.0 years	$	33.17		—	$	—
		397,354					307,354

NOTE M — 401(k) PROFIT-SHARING PLAN

We maintain a 401(k) profit-sharing plan for our employees. Under this plan, we may make discretionary profit-sharing and matching 401(k) contributions. Contributions of $1,411,000, $1,333,000 and $1,219,000 were made in fiscal years 2008, 2007 and 2006, respectively.

NOTE N — CASH FLOW INFORMATION

The following is supplemental cash flow information:

	Fiscal year ended
	September 27,		September 29,		September 30,
	2008		2007		2006
	(in thousands)
Cash paid for:
Interest	$	21	$	6	$	4
Income taxes		13,896		17,753		17,465

Non cash items:
Capital leases	$	—	$	580	$	—

NOTE O — SEGMENT REPORTING

We principally sell our products to the food service and retail supermarket industries. We also distribute our products directly to the consumer through our chain of retail stores referred to as The Restaurant Group. Sales and results of our frozen beverages business are monitored separately from the balance of our food service business and restaurant group because of different distribution and capital requirements. We maintain separate and discrete financial information for the four operating segments mentioned above which is available to our Chief Operating Decision Makers. We have applied no aggregate criteria to any of these operating segments in order to determine reportable segments.

Our four reportable segments are Food Service, Retail Supermarkets, The Restaurant Group 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

F-23

J & J SNACK FOODS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE O — SEGMENT REPORTING (Continued)

Retail Supermarkets

The Restaurant Group

We sell direct to the consumer through our Restaurant Group, which operates BAVARIAN PRETZEL BAKERY and PRETZEL GOURMET, our chain of specialty snack food retail outlets.

Frozen Beverages

We sell frozen beverages 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.

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 and evaluate operating income and sales 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 four reportable segments is as follows:

	Fiscal year ended
	September 27,			September 29,			September 30,
	2008			2007			2006
	(in thousands)
Sales to external customers:
Food Service	$	400,194		$	355,764		$	320,167
Retail Supermarket		57,112			52,131			46,948
The Restaurant Group		1,635			2,766			3,897
Frozen Beverages		170,418			158,240			143,819
	$	629,359		$	568,901		$	514,831

Depreciation and Amortization:
Food Service	$	16,655		$	16,176		$	13,992
Retail Supermarket		—			—			—
The Restaurant Group		54			60			102
Frozen Beverages		10,761			10,772			10,514
	$	27,470		$	27,008		$	24,608

Operating Income (Loss):
Food Service	$	24,784		$	33,417		$	32,083
Retail Supermarket		4,665			(2	)		1,945
The Restaurant Group		(140	)		31			(253	)
Frozen Beverages		14,027			15,134			11,289
	$	43,336		$	48,580		$	45,064

Capital Expenditures:
Food Service	$	11,898		$	12,755		$	11,111
Retail Supermarket		—			—			—
The Restaurant Group		—			102			3
Frozen Beverages		10,883			9,908			8,625
	$	22,781		$	22,765		$	19,739

Assets:
Food Service	$	277,481		$	252,843		$	218,834
Retail Supermarket		—			—			—
The Restaurant Group		629			690			838
Frozen Beverages		130,298			126,755			121,136
	$	408,408		$	380,288		$	340,808

F-24

J & J SNACK FOODS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE P — QUARTERLY FINANCIAL DATA (UNAUDITED)

	Fiscal Year Ended September 27, 2008
	Net Sales		Gross Profit		Net Earnings		Net Earnings Per Diluted Share(1)
	(in thousands, except per share information)
1st Quarter	$	130,898	$	35,387	$	1,897	$	.10
2nd Quarter		144,229		40,400		3,998		.21
3rd Quarter		176,839		55,752		10,820		.57
4th Quarter		177,393		55,368		11,193		.59
Total	$	629,359	$	186,907	$	27,908	$	1.47

	Fiscal Year Ended September 29, 2007
	Net Sales		Gross Profit		Net Earnings		Net Earnings Per Diluted Share(1)
	(in thousands, except per share information)
1st Quarter	$	114,142	$	35,248	$	3,805	$	.20
2nd Quarter		130,040		42,407		5,333		.28
3rd Quarter		162,510		55,658		12,497		.66
4th Quarter		162,209		53,214		10,477		.55
Total	$	568,901	$	186,527	$	32,112	$	1.69

All share amounts reflect the 2-for-1 stock split effective January 5, 2006.

(1) Total of quarterly amounts do not necessarily agree to the annual report amounts due to separate quarterly calculations of weighted average shares outstanding

NOTE Q — SUBSEQUENT EVENT

F-25

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

Year	Description	Opening Balance		Charged to Expense		Closing Deductions			Balance
2008	Allowance for doubtful accounts	$	1,052,000	$	502,000	$	628,000	(1)	$	926,000
2007	Allowance for doubtful accounts	$	963,000	$	189,000	$	100,000	(1)	$	1,052,000
2006	Allowance for doubtful accounts	$	1,054,000	$	300,000	$	391,000	(1)	$	963,000
2008	Inventory Reserve	$	2,864,000	$	3,149,000	$	2,196,000	(2)	$	3,817,000
2007	Inventory Reserve	$	2,330,000	$	1,911,000	$	1,377,000	(2)	$	2,864,000
2006	Inventory Reserve	$	1,922,000	$	1,679,000	$	1,271,000	(2)	$	2,330,000

(1) Write-off of uncollectible accounts receivable.

(2) Disposals of obsolete inventory.

S-1