J&J SNACK FOODS CORP - Quarter Report: 2010 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the period ended March 27, 2010

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 0-14616

J & J SNACK FOODS CORP.

(Exact name of registrant as specified in its charter)

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

6000 Central Highway, Pennsauken, NJ 08109

(Address of principal executive offices)

Telephone (856) 665-9533

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

o Yes o No

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 o	Accelerated filer x

Non-accelerated filer o	Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes x No

As of April 19, 2010, there were 18,414,911 shares of the Registrant’s Common Stock outstanding.

INDEX

		Page
		Number

Part I.	Financial Information

Item l.	Consolidated Financial Statements

Consolidated Balance Sheets – March 27, 2010 (unaudited) and September 26, 2009		3

Consolidated Statements of Earnings (unaudited) – Three Months and Six Months Ended March 27, 2010 and March 28, 2009		5

Consolidated Statements of Cash Flows (unaudited) – Six Months Ended March 27, 2010 and March 28, 2009		6

Notes to the Consolidated Financial Statements
(unaudited)		7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28

Item 4.	Controls and Procedures	28

Part II.	Other Information

Item 4.	Submission of Matters to a Vote of Security Holders	29

Item 6.	Exhibits and Reports on Form 8-K	29

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

J & J SNACK FOODS CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands)

ASSETS

	March 27,		September 26,
	2010		2009
	(Unaudited)
Current assets
Cash and cash equivalents	$	60,003	$	60,343
Marketable securities held to maturity		30,460		38,653
Accounts receivable, net		59,361		60,542
Inventories, net		53,627		46,004
Prepaid expenses and other		2,378		1,910
Deferred income taxes		3,704		3,659
		209,533		211,111

Property, plant and equipment, at cost
Land		1,416		1,416
Buildings		8,672		8,672
Plant machinery and equipment		139,082		133,758
Marketing equipment		210,287		202,708
Transportation equipment		2,935		2,733
Office equipment		12,115		11,461
Improvements		19,044		18,454
Construction in progress		2,074		3,954
		395,625		383,156
Less accumulated depreciation and amortization		296,422		285,983

		99,203		97,173

Other assets
Goodwill		60,314		60,314
Other intangible assets, net		46,930		49,125
Marketable securities held to maturity		26,345		19,994
Other		1,899		2,110
		135,488		131,543
	$	444,224	$	439,827

See accompanying notes to the consolidated financial statements.

J & J SNACK FOODS CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS – Continued

(in thousands)

LIABILITIES AND	March 27			September 26
STOCKHOLDERS’ EQUITY	2010			2009
	(Unaudited)

Current liabilities
Current obligations under capital leases	$	97		$	96
Accounts payable		47,344			48,204
Accrued liabilities		5,559			5,919
Accrued compensation expense		9,001			11,656
Dividends payable		1,980			1,804

		63,981			67,679

Long-term obligations under capital leases		236			285
Deferred income taxes		27,033			27,033
Other long-term liabilities	1,936				1,986
		29,205			29,304

Stockholders’ equity
Capital stock
Preferred, $1 par value; authorized, 10,000 shares; none issued		-			-
Common, no par value;
authorized 50,000 shares;
issued and outstanding,
18,414 and 18,526 shares,
respectively		37,287			41,777
Accumulated other comprehensive loss		(2,880	)		(3,431	)
Retained earnings		316,631			304,498

		351,038			342,844
	$	444,224		$	439,827

See accompanying notes to the consolidated financial statements.

J & J SNACK FOODS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

(in thousands, except per share amounts)

	Three months ended						Six months ended
	March 27,			March 28,			March 27,			March 28,
	2010			2009			2010			2009

Net Sales	$	157,361		$	149,352		$	306,463		$	290,494

Cost of goods sold(1)		107,564			103,975			210,647			204,435
Gross profit		49,797			45,377			95,816			86,059

Operating expenses
Marketing(2)		16,428			16,138			32,887			32,578
Distribution(3)		12,564			11,800			24,988			23,574
Administrative(4)		5,972			5,567			11,626			11,180
Other general
expense (income)		13			(8	)		4			16
		34,977			33,497			69,505			67,348

Operating income		14,820			11,880			26,311			18,711

Other income (expenses)
Investment income		282			298			594			759
Interest expense & other		(84	)		(28	)		(113	)		(57	)

Earnings before income taxes		15,018			12,150			26,792			19,413

Income taxes		6,018			4,906			10,701			7,850

NET EARNINGS	$	9,000		$	7,244		$	16,091		$	11,563

Earnings per diluted share	$	.48		$	.39		$	.86		$	.62

Weighted average number of diluted shares		18,666			18,618			18,691			18,696

Earnings per basic share	$	.49		$	.39		$	.87		$	.62

Weighted average number of basic shares		18,477			18,425			18,510			18,520

(1)	Includes share-based compensation expense of $41 and $99 for the three and six months ended March 27, 2010, respectively and $45 and $124 for the three and six months ended March 28, 2009, respectively.

(2)	Includes share-based compensation expense of $108 and $252 for the three and six months ended March 27, 2010, respectively and $164 and $425 for the three and six months ended March 28, 2009, respectively.

(3)	Includes share-based compensation expense of $5 and $12 for the three and six months ended March 27, 2010, respectively and $4 and $12 for the three and six months ended March 28, 2009, respectively.

(4)	Includes share-based compensation expense of $141 and $315 for the three and six months ended March 27, 2010, respectively and $168 and $423 for the three and six months ended March 28, 2009, respectively.

See accompanying notes to the consolidated financial statements.

J & J SNACK FOODS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (in thousands)

	Six months ended
	March 27,			March 28,
	2010			2009
Operating activities:
Net earnings	$	16,091		$	11,563
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization of fixed assets		11,948			11,065
Amortization of intangibles and deferred costs		2,567			2,550
Share-based compensation		678			984
Deferred income taxes		(41	)		(88	)
Other		3			(11	)
Changes in assets and liabilities, net of effects from purchase of companies
Decrease in accounts receivable		1,259			3,702
Increase in inventories		(7,647	)		(2,447	)
Increase in prepaid expenses		(462	)		(531	)
(Decrease) increase in accounts payable and accrued liabilities		(4,030	)		210
Net cash provided by operating activities		20,366			26,997
Investing activities:
Payments for purchases of companies, net of cash acquired		(1,055	)		-
Purchases of property, plant and equipment		(13,081	)		(10,070	)
Purchase of marketable securities		(47,496	)		(33,295	)
Proceeds from redemption and sales of marketable securities		49,338			3,075
Proceeds from redemption and sales of auction market preferred stock		-			35,200
Proceeds from disposal of property and equipment		207			142
Other		(6	)		21
Net cash used in investing activities		(12,093	)		(4,927	)
Financing activities:
Payments to repurchase common stock		(5,894	)		(12,510	)
Proceeds from issuance of stock		727			866
Payments on capitalized lease obligations		(48	)		(46	)
Payment of cash dividend		(3,782	)		(3,518	)
Net cash used in financing activities		(8,997	)		(15,208	)
Effect of exchange rate on cash and cash equivalents		384			(1,291	)
Net (decrease) increase in cash and cash equivalents		(340	)		5,571
Cash and cash equivalents at beginning of period		60,343			44,265
Cash and cash equivalents at end of period	$	60,003		$	49,836

See accompanying notes to the consolidated financial statements.

J & J SNACK FOODS CORP. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position and the results of operations and cash flows. Certain prior year amounts have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported net earnings.

The results of operations for the three months and six months ended March 27, 2010 and March 28, 2009 are not necessarily indicative of results for the full year. Sales of our frozen beverages and frozen juice bars and ices are generally higher in the third and fourth quarters due to warmer weather.

While we believe that the disclosures presented are adequate to make the information not misleading, it is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 26, 2009.

Note 2

We recognize revenue from our products when the products are shipped to our customers. Repair and maintenance equipment service revenue is recorded when it is performed provided the customer terms are that the customer is to be charged on a time and material basis or on a straight-line basis over the term of the contract when the customer has signed a service contract. Revenue is recognized only where persuasive evidence of an arrangement exists, our price is fixed or estimable and collectability is reasonably assured. We record offsets to revenue for allowances, end-user pricing adjustments, trade spending, coupon redemption costs and returned product. Customers generally do not have the right to return product unless it is damaged or defective. We provide an allowance for doubtful receivables after taking into consideration historical experience and other factors. The allowance for doubtful receivables was $830,000 and $623,000 at March 27, 2010 and September 26, 2009, respectively.

Note 3

Depreciation of equipment and buildings is provided for by the straight-line method over the assets’ estimated useful lives. Amortization of improvements is provided for by the straight-line method over the term of the lease or the assets’ estimated useful lives, whichever is shorter. Licenses and rights, customer relationships and non compete agreements arising from acquisitions are amortized by the straight-line method over periods ranging from 3 to 20 years.

Note 4

Basic earnings per common share (EPS) excludes dilution and is computed by dividing income available to common shareholders by the weighted average common shares outstanding during the period. Diluted EPS takes into consideration the potential dilution that could occur if securities (stock options) or other contracts to issue common stock were exercised and converted into common stock. Our calculation of EPS is as follows:

	Three Months Ended March 27, 2010
	Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount
	(in thousands, except per share amounts)

Basic EPS
Net Earnings available to common stockholders	$	9,000		18,477	$	.49

Effect of Dilutive Securities
Options		-		189		(.01	)

Diluted EPS
Net Earnings available to common stockholders plus assumed conversions	$	9,000		18,666	$	.48

	Six Months Ended March 27, 2010
	Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount
	(in thousands, except per share amounts)

Basic EPS
Net Earnings available to common stockholders	$	16,091		18,510	$	.87

Effect of Dilutive Securities
Options		-		181		(.01	)

Diluted EPS
Net Earnings available to common stockholders plus assumed conversions	$	16,091		18,691	$	.86

94,200 anti-dilutive shares have been excluded from the computation of diluted EPS because the options’ exercise price is greater than the average market price of the common stock.

	Three Months Ended March 28, 2009
	Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount
	(in thousands, except per share amounts)

Basic EPS
Net Earnings available to common stockholders	$	7,244		18,425	$	.39

Effect of Dilutive Securities
Options		-		193		-

Diluted EPS
Net Earnings available to common stockholders plus assumed conversions	$	7,244		18,618	$	.39

149,850 anti-dilutive shares have been excluded from the computation of diluted EPS because the options’ exercise price is greater than the average market price of the common stock.

	Six Months Ended March 28, 2009
	Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount
	(in thousands, except per share amounts)

Basic EPS
Net Earnings available to common stockholders	$	11,563		18,520	$	.62

Effect of Dilutive Securities
Options		-		176		-

Diluted EPS
Net Earnings available to common stockholders plus assumed conversions	$	11,563		18,696	$	.62

261,595 anti-dilutive shares have been excluded from the computation of diluted EPS because the options’ exercise price is greater than the average market price of the common stock.

Note 5

Our calculation of comprehensive income is as follows:

	Three months ended					Six months ended
	March 27,		March 28,			March 27,		March 28,
	2010		2009			2010		2009
	(in thousands)

Net earnings	$	9,000	$	7,244		$	16,091	$	11,563
Foreign currency translation adjustment		285		(444	)		551		(1,881	)
Comprehensive income	$	9,285	$	6,800		$	16,642	$	9,682

Note 6

At March 27, 2010, the Company has three stock-based employee compensation plans. Share-based compensation was recognized as follows:

	Three months ended				Six months ended
	March 27,		March 28,		March 27,		March 28,
	2010		2009		2010		2009
	(in thousands, except per share amounts)

Stock Options	$	154	$	182	$	373	$	488
Stock purchase plan		32		30		99		174
Deferred stock issued to outside directors		34		34		69		69
Restricted stock issued to an employee		10		25		20		50
	$	230	$	271	$	561	$	781

Per diluted share	$	.01	$	.01	$	.03	$	.04

The above compensation is net of tax benefits	$	65	$	110	$	117	$	203

The Company anticipates that share-based compensation will not exceed $900,000, net of tax benefits, or approximately $.05 per share for the fiscal year ending September 25, 2010.

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 2010 and 2009: expected volatility of 28% and 23%; risk-free interest rates of 2.14% and 2.77%; dividend rate of 1.2% and 1.3% and expected lives ranging between 5 and 10 years.

During the 2010 and 2009 six month periods, the Company granted 100,330 and 3,000 stock options, respectively. The weighted-average grant date fair value of these options was $9.11 and $6.40, respectively. No options were issued in the second quarters of 2010 and 2009.

Expected volatility for both years is based on the historical volatility of the price of our common shares over the past 50 to 54 months for 5 year options and 10 years for 10 year options. We use historical information to estimate expected life and forfeitures within the valuation model. The expected term of awards represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Compensation cost is recognized using a straight-line method over the vesting or service period and is net of estimated forfeitures.

Note 7

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

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

On September 30, 2007, the first day of the 2008 fiscal year, we recognized a $925,000 decrease to opening retained earnings from the cumulative effect of recognizing a liability for uncertain tax positions. The total amount of gross unrecognized tax benefits is $1,860,000 and $1,895,000 on March 27, 2010 and September 26, 2009, respectively, all of which would impact our effective tax rate over time, if recognized. We recognize interest and penalties related to income tax matters as a part of the provision for income taxes. As of March 27, 2010 and September 26, 2009, respectively, the Company has

$778,000 and $742,000 of accrued interest and penalties.

In addition to our federal tax return and tax returns for Mexico and Canada, we file tax returns in all states that have a corporate income tax with virtually all open for examination for three to four years.

Note 8

In December 2007, the FASB issued guidance expanding the definition of a business combination and requiring the fair value of the purchase price of an acquisition, including the issuance of equity securities, to be determined on the acquisition date. The guidance also requires that all assets, liabilities, contingent considerations, and contingencies of an acquired business be recorded at fair value at the acquisition date. In addition, the guidance requires that acquisition costs generally be expensed in the period incurred and changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period to impact income tax expense. The effect of this guidance on our consolidated financial statements will depend upon the nature, terms and size of any acquisitions consummated in fiscal year 2010 or later.

In August 2008, the FASB issued guidance that 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 guidance’s effective date. The guidance also requires new disclosures for all intangible assets recognized as of, and subsequent to, the effective date. The underlying purpose of the guidance 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. This guidance is effective for our 2010 fiscal year. The implementation of this guidance has had no effect on our consolidated financial statements.

In April 2009, the FASB issued guidance that amends the provisions in its guidance issued in December 2007 for the initial recognition and measurement, subsequent measurement and accounting, and disclosures for assets and liabilities arising from contingencies in business combinations. This revised guidance eliminates the distinction between contractual and non-contractual contingencies, including the initial recognition and measurement criteria, included in the December 2007 guidance and carries forward most of the provisions related to acquired contingencies in its June 2001 guidance. This guidance is effective for contingent assets and contingent liabilities acquired in business combinations for which the acquisition date is on or after the beginning of our fiscal year 2010. The effect of this guidance on our consolidated financial statements will depend upon the nature, terms and size of any acquired contingencies consummated in fiscal year 2010 or later.

In June 2009, the FASB issued the FASB Accounting Standards Codification (“the Codification”), which establishes the Codification as the source of authoritative accounting guidance to be applied in the preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”). The Codification, which changes the referencing of financial standards, became effective for interim and annual periods ending on or after September 15, 2009. The codification is now the single official source of authoritative U.S. GAAP (other than guidance issued by the Securities and Exchange Commission), superseding existing FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force and related literature. Only one level of authoritative U.S. GAAP now exists. All other literature is considered non-authoritative. The Codification does not change U.S. GAAP. We adopted the Codification during our fiscal year ended September 26, 2009.

Note 9

Inventories consist of the following:

	March 27,		September 26,
	2010		2009
	(unaudited)
	(in thousands)

Finished goods	$	26,405	$	19,913
Raw materials		9,262		8,060
Packaging materials		4,938		5,141
Equipment parts & other		13,022		12,890
		53,627	$	46,004

The above inventories are net of reserves	$	4,255	$	4,209

Note 10

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

The primary products sold by the food service group are soft pretzels, frozen juice treats and desserts, churros and baked goods. Our customers in the food service industry include snack bars and food stands in chain, department and discount stores; malls and shopping centers; fast food outlets; stadiums and sports arenas; leisure and theme parks; convenience stores; movie theatres; warehouse club stores; schools, colleges and other institutions. Within the food service industry, our products are purchased by the consumer primarily for consumption at the point-of-sale.

Retail Supermarkets

The primary products sold to the retail supermarket industry are soft pretzel products, including SUPERPRETZEL, LUIGI’S Real Italian Ice, MINUTE MAID Juice Bars and Soft Frozen Lemonade, WHOLE FRUIT Sorbet, FRUIT-A-FREEZE frozen fruit bars, ICEE frozen novelties and TIO PEPE’S Churros. Within the retail supermarket industry, our frozen and prepackaged products are purchased by the consumer for consumption at home.

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 and related products to the food service industry, including our restaurant group, primarily under the names ICEE, SLUSH PUPPIE and ARCTIC BLAST in the United States, Mexico and Canada. We also provide repair and maintenance service to customers for customers’ owned equipment, which revenue was $9,611,000 and $19,568,000 for the three and six months ended March 27, 2010, respectively; and $9,810,000 and $20,360,000 for the three and six months ended March 28, 2009, respectively. Additionally, we sell frozen carbonated beverage machines, which revenue was $1,403,000 and $3,453,000 for the three and six months ended March 27, 2010, respectively; and $2,098,000 and $4,160,000 for the three and six months ended March 28, 2009.

The Chief Operating Decision Maker for Food Service, Retail Supermarkets and The Restaurant Group and the Chief Operating Decision Maker for Frozen Beverages monthly review detailed operating income statements and sales reports in order to assess performance and allocate resources to each individual segment. In addition, the Chief Operating Decision Makers review and evaluate depreciation, capital spending and assets of each segment on a quarterly basis to monitor cash flow and asset needs of each segment. Information regarding the operations in these four reportable segments is as follows:

	Three Months Ended						Six Months Ended
	March 27,			March 28,			March 27,			March 28,
	2010			2009			2010			2009
	(in thousands)
	(unaudited)
Sales to External Customers:
Food Service	$	105,128		$	99,914		$	206,389		$	197,449
Retail Supermarket		15,108			13,529			27,728			23,562
The Restaurant Group		217			319			539			752
Frozen Beverages		36,908			35,590			71,807			68,731
	$	157,361		$	149,352		$	306,463		$	290,494

Depreciation and Amortization:
Food Service	$	4,233		$	4,093		$	8,394		$	8,157
Retail Supermarket		-			-			-			-
The Restaurant Group		10			8			18			17
Frozen Beverages		3,122			2,743			6,103			5,441
	$	7,365		$	6,844		$	14,515		$	13,615

Operating Income(Loss):
Food Service	$	12,870		$	10,846		$	23,342		$	18,127
Retail Supermarket		1,905			988			3,658			2,089
The Restaurant Group		(32	)		(18	)		(11	)		20
Frozen Beverages		77			64			(678	)		(1,525	)
	$	14,820		$	11,880		$	26,311		$	18,711

Capital Expenditures:
Food Service	$	2,561		$	3,127		$	5,734		$	5,877
Retail Supermarket		-			-			-			-
The Restaurant Group		-			-			-			-
Frozen Beverages		3,070			2,447			7,347			4,193
	$	5,631		$	5,574		$	13,081		$	10,070

Assets:
Food Service	$	313,475		$	279,056		$	313,475		$	279,056
Retail Supermarket		-			-			-			-
The Restaurant Group		550			550			550			550
Frozen Beverages		130,199			124,075			130,199			124,075
	$	444,224		$	403,681		$	444,224		$	403,681

Note 11

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

The carrying amounts of acquired intangible assets for the Food Service, Retail Supermarkets, The Restaurant Group and Frozen Beverage segments as of March 27, 2010 are as follows:

	Gross				Net
	Carrying		Accumulated		Carrying
	Amount		Amortization		Amount
	(in thousands)
FOOD SERVICE

Indefinite lived intangible assets
Trade Names	$	8,180	$	-	$	8,180

Amortized intangible assets
Non compete agreements		435		316		119
Customer relationships		33,287		13,246		20,041
Licenses and rights		3,606		2,174		1,432
	$	45,508	$	15,736	$	29,772

RETAIL SUPERMARKETS

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		198		152		46
Customer relationships		6,478		2,544		3,934
Licenses and rights		1,601		469		1,132
	$	17,592	$	3,165	$	14,427

Amortized intangible assets are being amortized by the straight-line method over periods ranging from 3 to 20 years and amortization expense is reflected throughout operating expenses. There were no changes in the gross carrying amount of intangible assets for the three months ended March 27, 2010. Aggregate amortization expense of intangible assets for the three months ended March 27, 2010 and March 28, 2009 was $1,121,000 and $1,127,000, respectively and for the six months ended March 27, 2010 and March 28, 2009 was $2,245,000 and $2,254,000, respectively.

Estimated amortization expense for the next five fiscal years is approximately $4,500,000 in 2010, $4,100,000 in 2011, $3,800,000 in 2012 and $3,700,000 in 2013 and 2014. The weighted average amortization period of the intangible assets is 10.3 years.

Goodwill

The carrying amounts of goodwill for the Food Service, Retail Supermarket, Restaurant Group and Frozen Beverage segments are as follows:

	Food		Retail		Restaurant		Frozen
	Service		Supermarket		Group		Beverages		Total
	(in thousands)
Balance at March 27, 2010	$	23,988	$	-	$	386	$	35,940	$	60,314

There were no changes in the carrying amounts of goodwill for the three months ended March 27, 2010.

Note 12

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

Level 1

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

Level 2

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

Level 3

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

We have concluded that the carrying value of 26 week certificates of deposit placed through the Certificate of Deposit Account Registry Service equals fair market value.

Other marketable securities held to maturity values are derived solely from level 1 inputs. We had no holdings of AMPS at March 27, 2010 and September 26, 2009.

The amortized cost, unrealized gains and losses, and fair market values of our investment securities held to maturity at March 27, 2010 are summarized as follows:

			Gross		Gross		Fair
	Amortized		Unrealized		Unrealized		Market
	Cost		Gains		Losses		Value
	(in thousands)

US Government Agency Debt	$	8,000	$	2	$	23	$	7,979
FDIC Backed Corporate Debt		13,160		188		-		13,348
Certificates of Deposit		35,645		7		2		35,650
		56,805	$	197	$	25	$	56,977

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 investment securities held to maturity at September 26, 2009 are summarized as follows:

			Gross		Gross		Fair
	Amortized		Unrealized		Unrealized		Market
	Cost		Gains		Losses		Value
	(in thousands)

US Government Agency Debt	$	6,009	$	22	$	1	$	6,030
FDIC Backed Corporate Debt		13,213		198		-		13,411
Certificates of Deposit		39,425		21		3		39,443
	$	58,647	$	241	$	4	$	58,884

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

The amortized cost and fair value of the Company’s held to maturity securities by contractual maturity at March 27, 2010 and September 26, 2009 are summarized as follows:

	March 27, 2010				September 26, 2009
	(in thousands)
			Fair				Fair
	Amortized		Market		Amortized		Market
	Cost		Value		Cost		Value

Due in one year or less	$	30,460	$	30,537	$	38,653	$	38,668
Due after one year through five years		24,345		24,438		19,994		20,216
Due after five years through ten years		2,000		2,002		-		-
Total held to maturity securities	$	56,805	$	56,977	$	58,647	$	58,884
Less current portion		30,460		30,537		38,653		38,668
Long term held to maturity securities	$	26,345	$	26,440	$	19,994	$	20,216

Proceeds from the sale and redemption of auction market preferred stock were $19,900,000 and $35,200,000 in the three and six months ended March 28, 2009, respectively, with no gain or loss recorded. We use the specific identification method to determine the cost of securities sold.

Proceeds from the sale and redemption of marketable securities were $26,898,000 and $49,338,000 in the three and six months ended March 27, 2010, respectively; and $2,885,000 and $3,075,000 in the three and six months ended March 28, 2009, respectively, with no gain or loss recorded. We use the specific identification method to determine the cost of securities sold.

Item 2.

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

Liquidity and Capital Resources

Our current cash and cash equivalents balances and cash expected to be provided by future operations are our primary sources of liquidity. We believe that these sources, along with our borrowing capacity, are sufficient to fund future growth and expansion. See Note 12 to these financial statements for a discussion of our investment securities.

The Company’s Board of Directors declared a regular quarterly cash dividend of $.1075 per share of its common stock payable on April 7, 2010 to shareholders of record as of the close of business on March 15, 2010.

In the three months ended December 26, 2009, we purchased and retired 153,703 shares of our common stock at a cost of $5,894,000 under a million share buyback authorization approved by the Company’s Board of Directors in February 2008 leaving 260,576 as the number of shares that may yet be purchased under the share buyback authorization. We did not purchase any shares in the three months ended March 27, 2010. We purchased and retired 450,597 shares at a cost of $12,510,000 in our fiscal year ended September 26, 2009. Of the shares purchased and retired in our fiscal year 2009, 400,000 shares were purchased at the purchase price of $27.90 per share from Gerald B. Shreiber, Chairman of the Board, Chief Executive Officer and Director of the Company.

In the three months ended March 27, 2010 and March 28, 2009, fluctuations in the valuation of the Mexican and Canadian currencies and the resulting translation of the net assets of our Mexican and Canadian subsidiaries caused a decrease of $285,000 and an increase of $444,000, respectively, in accumulated other comprehensive loss. In the six month periods, there was a decrease of $551,000 in fiscal year 2010 and an increase of $1,881,000 in fiscal year 2009.

In February 2010, we acquired the assets of Parrot Ice, a manufacturer and distributor of a premium brand frozen beverage sold primarily in convenience stores. We expect revenues from Parrot Ice to be less than $2 million for our 2010 fiscal year.

Our general-purpose bank credit line which expires in December 2011 provides for up to a $50,000,000 revolving credit facility. The agreement contains restrictive covenants and requires commitment fees in accordance with standard banking practice. There were no outstanding balances under this facility at March 27, 2010.

Results of Operations

Net sales increased $8,009,000 or 5% for the three months to $157,361,000 and $15,969,000 or 5% to $306,463,000 for the six months ended March 27, 2010 compared to the three and six months ended March 28, 2009.

Approximately $4.3 million, or 54%, for the three months and $7.4 million, or 47%, for the six months of the increased sales were sales of funnel cake fries to one customer, Burger King, which is carrying the product in virtually all of its domestic locations. We are not able to provide an estimate of these sales going forward.

FOOD SERVICE

Sales to food service customers increased $5,214,000 or 5% in the second quarter to $105,128,000 and increased $8,940,000 or 5% for the six months. Sales of funnel cake fries to Burger King accounted for over 80% of the food service sales increase in the quarter and the six months. Soft pretzel sales to the food service market increased 2% to $25,437,000 in the second quarter and increased 1% to $49,768,000 in the six months. Italian ice and frozen juice treat and dessert sales decreased 12% to $9,644,000 in the three months and 10% to $17,371,000 in the six months primarily as the result of lower sales to one contract packing customer and to school food service accounts. We expect these lower sales to continue for the balance of our fiscal year as we have lost the one contract packing customer and our sales to school food service accounts continue to be impacted by nutritional concerns. Churro sales to food service customers decreased 3% to $7,159,000 in the second quarter and were down 6% to $13,920,000 in the six months, with about 60% of the decrease in the six month period coming from sales to one customer who has lower sales due to normal menu fatigue. Sales of bakery products, excluding biscuit and dumpling sales and fruit and fig bar sales, increased $1,040,000 or 3% in the second quarter to $39,360,000 and increased $2,202,000 or 3% for the six months due primarily to increased sales to private label customers. Biscuit and dumpling sales increased 13% to $9,039,000 in the quarter and were up 6% to $18,698,000 for the six months mainly due to increased sales of products introduced over a year ago.

Sales of fig and fruit bars decreased 3% in the second quarter to $8,205,000 and decreased 2% in the six months to $16,606,000 due primarily to lower sales to one customer who discontinued a particular product. Funnel cake sales increased by $4,357,000 to $6,156,000 in the quarter and by $8,008,000 to $11,014,000 in the six months primarily due to the sales to Burger King. Sales of new products in the first twelve months since their introduction were approximately $8.6 million in the March quarter and $15.8 million in the six months. Net volume increases, including new product sales as defined above, accounted for virtually all of the sales increases this year. Operating income in our Food Service segment increased from $10,846,000 to $12,870,000 in the quarter and from $18,127,000 to $23,342,000 for the six months primarily as a result of increased volume as discussed above and lower commodity costs of about $800,000 in the quarter and about $4 million for the six months.

RETAIL SUPERMARKETS

Sales of products to retail supermarkets increased $1,579,000 or 12% to $15,108,000 in the second quarter and were up 18% to $27,728,000 in the first half. Soft pretzel sales for the second quarter were down less than 1% to $8,202,000 and were up 5% to $15,903,000 for the six months on a unit volume increase of 2% for the quarter and 5% for the six months. Sales of frozen juices and ices increased $1,532,000 or 27% to $7,278,000 in the second quarter and were up 37% to $12,806,000 in the first half on a unit volume increase of 21% in the quarter and 32% for the six months. Reduced trade spending of about $300,000 in the quarter and six months for the introduction of new frozen novelty items and a shift in product mix increased sales dollars in relation to the overall unit volume increases. Coupon redemption costs, a reduction of sales, increased 23% or about $251,000 for the six months and were essentially unchanged in the quarter. Sales of products in the first twelve months since their introduction were approximately $1.1 million in the March quarter and $2.5 million in the six months. Net volume increases, including new product sales as defined above and net of increased coupon costs, accounted for virtually all of the sales increases in the March quarter and in the six months. Operating income in our Retail Supermarkets segment increased from $988,000 to $1,905,000 in the quarter and from $2,089,000 to $3,658,000 in the six months primarily as a result of volume increases.

THE RESTAURANT GROUP

Sales of our Restaurant Group decreased 32% to $217,000 in the second quarter and 28% to $539,000 for the six month period. The sales decreases were caused primarily by the closing of stores in fiscal years 2009 and 2010 and by lower sales in general. Sales of stores open for both year’s six months were down about 10% from last year. Operating loss in our Restaurant Group segment increased $14,000 in the March quarter and an operating loss of $11,000 in the six months compared to an operating profit of $20,000 in last year’s six months. The decline in sales was the driver behind the poorer results.

FROZEN BEVERAGES

Frozen beverage and related product sales increased 4% to $36,908,000 in the second quarter and increased $3,076,000 or 4% to $71,807,000 in the six month period. Beverage sales alone increased 14% to $25,191,000 in the second quarter and were up 13% to $47,623,000 in the six months with increased sales to three customers accounting for approximately 80% of the increase. Gallon sales were up 9% for the three months and up 8% for the six months in our base ICEE business with sales to three customers accounting for all of the increase. Service revenue decreased 2% to $9,611,000 in the second quarter and 4% to $19,568,000 for the six months. Sales of frozen carbonated beverage machines, which tend to fluctuate from year to year while following no specific trend, were $695,000 lower this year than last in the three month period and for the six months, sales of machines were lower by $707,000. The estimated number of company owned frozen beverage dispensers was 41,000 and 38,700 at March 27, 2010 and September 26, 2009, respectively. Operating income in our Frozen Beverage segment was essentially unchanged in the quarter and for the six months, operating loss decreased $847,000. Higher gasoline costs of approximately $436,000 and $546,000 impacted the March quarter and six months, respectively. We expect higher gasoline costs to impact operating income for at least the balance of our fiscal year.

CONSOLIDATED

Gross profit as a percentage of sales increased to 31.65% in the three month period from 30.38% last year and increased to 31.27% in the six month period from 29.63% a year ago. Lower ingredient and packaging costs compared to last year of approximately $1 million for the quarter and $4.5 million for the six months and higher volumes were primarily responsible for the increased gross profit percentages. We expect that the significant year over year decline in ingredient and packaging costs has come to an end; however, ingredient and packaging costs can be extremely volatile and may be significantly different from what we are presently expecting and therefore we cannot project the impact of ingredient and packaging costs on our business going forward.

Total operating expenses increased $1,480,000 in the second quarter and as a percentage of sales were 22% in both years. For the first half, operating expenses increased $2,157,000 and as a percentage of sales decreased ½ of one percent but were 23% of sales in both years. Marketing expenses decreased about 4/10 of one percent from 11% to 10% of sales in the quarter and were at 11% for both years’ six months. Moderate spending increases throughout our business and higher sales accounted for the percent of sales decrease. Distribution expenses were 8% in all periods. Administrative expenses were 4% of sales in all periods.

Operating income increased $2,940,000 or 25% to $14,820,000 in the second quarter and $7,600,000 or 41% to $26,311,000 in the first half as a result of the aforementioned items.

Investment income decreased by $16,000 and $165,000 in the second quarter and six months, respectively, due to a general decline in the level of interest rates.

The effective income tax rate has been estimated at 40% for all periods reported.

Net earnings increased $1,756,000 or 24% in the current three month period to $9,000,000 and increased 39% to $16,091,000 in the six months this year from $11,563,000 last year 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.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

There has been no material change in the Company’s assessment of its sensitivity to market risk since its presentation set forth, in item 7a. “Quantitative and Qualitative Disclosures About Market Risk,” in its 2009 annual report on Form 10-K filed with the SEC.

Item 4.

Controls and Procedures

The Chief Executive Officer and the Chief Financial Officer of the Company (its principal executive officer and principal financial officer, respectively) have concluded, based on their evaluation as of March 27, 2010, that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There were no changes in the Company’s internal controls over financial reporting or in other factors that could significantly affect these controls subsequent to the date of such evaluation.

PART II. OTHER INFORMATION

Item 4.

Submission of Matters to a Vote of Security Holders

The results of voting at the Annual Meeting of Shareholders held on February 8, 2010 is as follows:

Absentees

Votes Cast

and Broker

For

Against

Withheld

Non Votes

Election of

Gerald B. Shreiber

as Director

15,329,361

1,169,650

The Company had 18,397,045 shares outstanding on December 11, 2009 the record date.

Item 6.

Exhibits and Reports on Form 8-K

Exhibits

31.1 & 31.2

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

99.5 & 99.6

Certification Pursuant to the 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Report on Form 8-K - Reports on Form 8-K were filed on January 22, 2010 and February 11, 2010

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	J & J SNACK FOODS CORP.

Dated: April 22, 2010	/s/ Gerald B. Shreiber
	Gerald B. Shreiber
	Chairman of the Board,
	President, Chief Executive
	Officer and Director
	(Principal Executive Officer)

Dated: April 22, 2010	/s/ Dennis G. Moore
	Dennis G. Moore, Senior Vice
	President, Chief Financial
	Officer and Director
	(Principal Financial Officer)
	(Principal Accounting Officer)