UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the period ended June 25, 2005 or Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number: 0-14616 J & J SNACK FOODS CORP. (Exact name of registrant as specified in its charter) New Jersey 22-1935537 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6000 Central Highway, Pennsauken, NJ 08109 (Address of principal executive offices) Telephone (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 No Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) X Yes No As of July 16, 2005, there were 9,123,636 shares of the Registrant's Common Stock outstanding. INDEX Page Number Part I. Financial Information Item l. Consolidated Financial Statements Consolidated Balance Sheets - June 25, 2005 (unaudited) and September 25, 2004 3 Consolidated Statements of Operations - Three Months and Nine Months Ended June 25, 2005 and June 26, 2004 (unaudited) 5 Consolidated Statements of Cash Flows - Nine Months Ended June 25, 2005 and June 26, 2004 (unaudited) 6 Notes to the Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 20 Item 3. Quantitative and Qualitative Disclosures About Market Risk 24 Item 4. Controls and Procedures 24 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 26 PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements J & J SNACK FOODS CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands) ASSETS June 25, September 25, 2005 2004 (Unaudited) Current assets Cash and cash equivalents $ 15,483 $ 19,600 Marketable securities available for sale 39,900 36,500 Accounts receivable 50,841 47,986 Inventories 35,218 29,587 Prepaid expenses and other 1,439 1,354 Deferred income taxes 3,385 3,385 146,266 138,412 Property, plant and equipment, at cost Land 556 556 Buildings 4,497 4,497 Plant machinery and equipment 106,167 100,442 Marketing equipment 190,288 182,136 Transportation equipment 1,266 1,037 Office equipment 8,755 8,411 Improvements 15,028 15,070 Construction in progress 738 2,731 327,295 314,880 Less accumulated deprecia- tion and amortization 238,014 225,406 89,281 89,474 Other assets Goodwill 51,477 46,477 Other intangible assets, net 9,348 1,804 Other 1,539 1,257 62,364 49,538 $297,911 $277,424 See accompanying notes to the consolidated financial statements. 3 J & J SNACK FOODS CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - Continued (in thousands) LIABILITIES AND June 25, September 25, STOCKHOLDERS' EQUITY 2005 2004 (unaudited) Current liabilities Accounts payable $ 36,641 $ 34,497 Accrued liabilities 16,894 13,149 53,535 47,646 Deferred income taxes 19,153 19,153 Other long-term liabilities 323 529 19,476 19,682 Stockholders' equity Capital stock Preferred, $1 par value; authorized, 5,000,000 shares; none issued - - Common, no par value; authorized 25,000 shares; issued and outstanding, 9,122 and 9,006 shares, respectively 34,950 33,069 Accumulated other comprehen- sive loss (1,889) (2,061) Retained earnings 191,839 179,088 224,900 210,096 $297,911 $277,424 See accompanying notes to the consolidated financial statements. 4 J & J SNACK FOODS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except per share amounts) Three months ended Nine months ended June 25, June 26, June 25, June 26, 2005 2004 2005 2004 Net Sales $129,452 $118,952 $327,323 $294,111 Cost of goods sold 83,177 76,702 218,856 196,477 Gross profit 46,275 42,250 108,467 97,634 Operating expenses Marketing 15,799 15,446 41,451 39,568 Distribution 10,541 9,136 28,763 23,985 Administrative 4,445 4,024 13,240 12,365 Other general (income)expense (47) 73 129 243 30,738 28,679 83,583 76,161 Operating income 15,537 13,571 24,884 21,473 Other income(expenses) Investment income 429 123 1,143 352 Interest expense and other (45) (30) (103) (87) Earnings before income taxes 15,921 13,664 25,924 21,738 Income taxes 6,042 4,959 9,773 7,866 NET EARNINGS $ 9,879 $ 8,705 $ 16,151 $ 13,872 Earnings per diluted share $1.06 $.95 $1.74 $1.52 Weighted average number of diluted shares 9,324 9,163 9,283 9,122 Earnings per basic share $1.08 $.97 $1.78 $1.56 Weighted average number of basic shares 9,121 8,956 9,078 8,873 See accompanying notes to the consolidated financial statements. 5 J & J SNACK FOODS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Nine months ended June 25, June 26, 2005 2004 Operating activities: Net earnings $16,151 $13,872 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization of fixed assets 17,255 17,464 Amortization of intangibles and deferred costs 828 744 Other 39 13 Changes in assets and liabilities, net of effects from purchase of companies Increase in accounts receivable (2,855) (8,677) Increase in inventories (4,943) (4,666) Increase in prepaid expenses (85) (9) Increase in accounts payable and accrued liabilities 4,544 9,222 Net cash provided by operating activities 30,934 27,963 Investing activities: Purchase of property, plant and equipment (15,583) (14,909) Payments for purchases of companies(16,088) (12,668) Proceeds from investments held to maturity - 275 Purchase of marketable securities (17,400) (34,500) Proceeds from sales of marketable securities 14,000 9,000 Proceeds from disposals of property and equipment 604 749 Other (377) (26) Net cash used in investing activities (34,844) (52,079) Financing activities: Proceeds from issuance of stock 1,881 3,072 Payments of cash dividend (2,260) - Net cash (used in) provided by financing activities (379) 3,072 Effect of exchange rate on cash and cash equivalents 172 (78) Net decrease in cash and cash equivalents (4,117) (21,122) Cash and cash equivalents at beginning of period 19,600 37,694 Cash and cash equivalents at end of period $15,483 $16,572 See accompanying notes to the consolidated financial statements. 6 J & J SNACK FOODS CORP. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 1 In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position and the results of operations and cash flows. Certain prior period 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 nine months ended June 25, 2005 and June 26, 2004 are not necessarily indicative of results for the full year. Sales at our retail stores are generally higher in the first quarter due to the holiday shopping season. 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 year ended September 25, 2004. Note 2 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 for others under time and material agreements, revenue is recognized upon the completion of the services. We also sell fixed-fee service contracts. The terms of coverage range between 12 and 60 months. We record deferred income on service contracts which is amortized by the straight-line method over the term of the contracts. We provide an allowance for doubtful receivables after taking into account historical experience and other factors. Note 3 Depreciation of equipment and buildings is provided for by the straight-line method over the assets' estimated useful lives. Amortization of 7 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. Note 4 Our calculation of earnings per share in accordance with SFAS No. 128, "Earnings Per Share," is as follows: Three Months Ended June 25, 2005 Income Shares Per Share (Numerator) (Denominator) Amount (in thousands, except per share amounts) Basic EPS Net Earnings available to common stockholders $ 9,879 9,121 $1.08 Effect of Dilutive Securities Options - 203 (.02) Diluted EPS Net Earnings available to common stockholders plus assumed conversions $ 9,879 9,324 $1.06 Nine Months Ended June 25, 2005 Income Shares Per Share (Numerator) (Denominator) Amount (in thousands, except per share amounts) Basic EPS Net Earnings available to common stockholders $16,151 9,078 $1.78 Effect of Dilutive Securities Options - 205 (.04) Diluted EPS Net Earnings available to common stockholders plus assumed conversions $16,151 9,283 $1.74 8 Three Months Ended June 26, 2004 Income Shares Per Share (Numerator) (Denominator) Amount (in thousands, except per share amounts) Basic EPS Net Earnings available to common stockholders $8,705 8,956 $.97 Effect of Dilutive Securities Options - 207 (.02) Diluted EPS Net Earnings available to common stockholders plus assumed conversions $8,705 9,163 $.95 35,700 anti-dilutive weighted shares have been excluded in the computation of the three months ended June 26, 2004 diluted EPS because the options' exercise price is greater than the average market price of the common stock. Nine Months Ended June 26, 2004 Income Shares Per Share (Numerator) (Denominator) Amount (in thousands, except per share amounts) Basic EPS Net Earnings available to common stockholders $13,872 8,873 $1.56 Effect of Dilutive Securities Options - 249 (.04) Diluted EPS Net Earnings available to common stockholders plus assumed conversions $13,872 9,122 $1.52 35,700 anti-dilutive weighted shares have been excluded in the computation of the nine months ended June 26, 2004 diluted EPS because the options' exercise price is greater than the average market price of the common stock. 9 Note 5 The Company accounts for stock options under SFAS No. 123, "Accounting for Stock-Based Compensation", as amended by SFAS No. 148, which contains a fair value-based method for valuing stock-based compensation that entities may use, which measures compensation cost at the grant date based on the fair value of the award. Compensation is then recognized over the service period, which is usually the vesting period. Alternatively, SFAS No. 123 permits entities to continue accounting for employee stock options and similar equity instruments under Accounting Principles Board (APB) Opinion 25, "Accounting for Stock Issued to Employees". Entities that continue to account for stock options using APB Opinion 25 are required to make pro forma disclosures of net income and earnings per share, as if the fair value-based method of accounting defined in SFAS No. 123 had been applied (see Note 6). At June 25, 2005, the Company has two stock-based employee compensation plans. The Company accounts for these plans under the recognition and measurement principles of APB No. 25, "Accounting for Stock Issued to Employees", and related interpretations. Stock-based employee compensation costs are not reflected in net income, as all options granted under the plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share as if the Company had applied the fair value recognition provisions of SFAS No. 123, to stock-based employee compensation. 10 Three Months Ended Nine Months Ended June 25, June 26, June 25, June 26, 2005 2004 2005 2004 Net income, as reported $9,879 $8,705 $16,151 $13,872 Less: stock-based compensation costs determined under fair value based method for all awards 210 288 629 861 Net income, pro forma $9,669 $8,417 $15,522 $13,011 Earnings per share of common stock - basic: As reported $ 1.08 $ .97 $ 1.78 $ 1.56 Pro forma $ 1.06 $ .94 $ 1.71 $ 1.47 Earnings per share of common stock - diluted: As reported $ 1.06 $ .95 $ 1.74 $ 1.52 Pro forma $ 1.04 $ .92 $ 1.67 $ 1.43 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 2005 and 2004: expected volatility of 16% and 26%; risk-free interest rates ranging between 3.70% and 3.83% and 2.91% and 3.16%; and expected lives ranging between 5 and 10 years. Note 6 In December 2004, the FASB issued Statement 151, "Inventory Costs, an amendment of ARB No. 43, Chapter 4". Statement 151 retains the general principle of ARB 43, Chapter 4, "Inventory Pricing (AC Section I78)", that inventories are presumed to be stated at cost; however, it amends ARB 43 to clarify that 11 . 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 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. The guidance in Statement 151 is effective for inventory costs during fiscal years beginning after June 15, 2005 and should be applied prospectively. Since we essentially follow the guidelines of Statement 151, we do not anticipate the adoption to have a material impact on our financial statements. In December 2004, the FASB issued Statement No. 123 (revised 2004), Share-Based Payment. Statement 123(R) requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. This statement is effective as of the first annual reporting period that begins after June 15, 2005. As a result, we will be required to adopt Statement 123(R) on September 25, 2005. 12 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. Statement 123(R) replaces FASB Statement No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. Statement 123, as originally issued in 1995, established as preferable a fair- value-based method of accounting for share-based payment transactions with employees. However, that Statement permitted entities the option of continuing to apply the guidance in Opinion 25, as long as the footnotes to financial statements disclosed what net income would have been had the preferable fair-value-based method been used. We anticipate implementing this new standard in the first quarter of our fiscal year 2006. The impact of this new standard, if it had been in effect, on the net earnings of our fiscal years ended in September 2004, 2003 and 2002 was disclosed in Note A13 Accounting for Stock-Based Compensation of our Financial Statements included in our Form 10-K for the fiscal year ended September 25, 2004 and the impact on the net earnings of the current quarter and nine months are disclosed in Note 5 of this Form 10-Q. Note 7 Inventories consist of the following: June 25, September 25, 2005 2004 (in thousands) Finished goods $17,977 $13,691 Raw materials 4,820 4,556 Packaging materials 3,491 2,984 Equipment parts & other 8,930 8,356 $35,218 $29,587 13 Note 8 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 to 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, 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. 14 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 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. 15 Information regarding the operations in these four reportable segments is as follows: Three Months Ended Nine Months Ended June 25, June 26, June 25, June 26, 2005 2004 2005 2004 (in thousands) Sales to External Customers: Food Service $ 78,031 $ 69,644 $202,966 $178,332 Retail Supermarket 12,742 12,990 29,478 28,556 Restaurant Group 1,152 1,567 4,379 6,106 Frozen Beverages 37,527 34,751 90,500 81,117 $129,452 $118,952 $327,323 $294,111 Depreciation and Amortization: Food Service $ 3,605 $ 3,495 $ 10,202 $ 10,283 Retail Supermarket - - - - Restaurant Group 52 84 170 294 Frozen Beverages 2,629 2,467 7,711 7,631 $ 6,286 $ 6,046 $ 18,083 $ 18,208 Operating Income: Food Service $ 8,115 $ 6,583 $ 18,340 $ 14,728 Retail Supermarket 1,191 1,220 1,667 1,996 Restaurant Group (110) (353) (347) (767) Frozen Beverages 6,341 6,121 5,224 5,516 $ 15,537 $ 13,571 $ 24,884 $ 21,473 Capital Expenditures: Food Service $ 2,256 $ 2,473 $ 6,450 $ 6,175 Retail Supermarket - - - - Restaurant Group - - 40 15 Frozen Beverages 3,499 3,972 9,093 8,719 $ 5,755 $ 6,445 $ 15,583 $ 14,909 Assets: Food Service $200,682 $170,771 $200,682 $170,771 Retail Supermarket - - - - Restaurant Group 1,062 1,600 1,062 1,600 Frozen Beverages 96,167 91,767 96,167 91,767 $297,911 $264,138 $297,911 $264,138 Note 9 We follow SFAS No. 142 "Goodwill and Intangible Assets". SFAS No. 142 includes requirements to test goodwill and indefinite lived intangible assets for impairment rather than amortize them; accordingly, we do not amortize goodwill. 16 Our four reporting units, which are also reportable segments, are Food Service, Retail Supermarkets, The Restaurant Group and Frozen Beverages. Each of the segments have goodwill and indefinite lived intangible assets. The carrying amount of acquired intangible assets for the Food Service, Retail Supermarkets, The Restaurant Group and Frozen Beverage segments as of June 25, 2005 are as follows: Gross Net Carrying Accumulated Carrying Amount Amortization Amount (in thousands) FOOD SERVICE Amortized intangible assets Licenses and rights $11,307 $2,000 $9,307 RETAIL SUPERMARKETS Amortized intangible assets Licenses and rights $ - $ - $ - THE RESTAURANT GROUP Amortized intangible assets Licenses and rights $ - $ - $ - FROZEN BEVERAGES Amortized intangible assets Licenses and rights $ 201 $ 160 $ 41 Licenses and rights are being amortized by the straight-line method over periods ranging from 4 to 20 years and amortization expense is reflected throughout operating expenses. Aggregate amortization expense of intangible assets for the three months ended June 25, 2005 and June 26, 2004 was $403,000 and $149,000, respectively and for the nine months ended June 25, 2005 and June 26, 2004 was $681,000 and $388,000, respectively. 17 Estimated amortization expense for the next five fiscal years is approximately $1,066,000 in 2005, $1,560,000 in 2006 and 2007, $1,500,000 in 2008 and $1,335,000 in 2009. The weighted average amortization period of the intangible assets is 7.25 years. 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 $14.7 million plus approximately $600,000 for inventory. 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. Annual sales are approximately $11 million. We allocated $8,225,000 0f the purchase price of Snackworks, LLC to amortizable intangible assets and $5,000,000 to goodwill. We are in the process of obtaining a third party valuation of certain assets of Snackworks; therefore, this preliminary allocation of the purchase price is subject to revision. Goodwill The carrying amounts of goodwill for the Food Service, Restaurant Group and Frozen Beverage segments are as follows: Food Retail Restaurant Frozen Service Supermarket Group Beverages Total (in thousands) Balance at June 25, 2005 $19,241 $ - $386 $31,850 $51,477 There were no changes in the carrying amount of goodwill for the three months ended June 25, 2005. Note 10 The amortized cost, unrealized gains and losses, and fair market values of our investment securities available for sale at June 25, 2005 are summarized as follows: 18 Gross Gross Fair Amortized Unrealized Unrealized Market Cost Gains Losses Value (in thousands) Available for Sale Securities Equity Securities $36,900 $ - $ - $36,900 Municipal Government Securities 3,000 - - 3,000 $39,900 $ - $ - $39,900 The amortized cost, unrealized gains and losses, and fair market values of the Company's investment securities available for sale at September 25, 2004 are summarized as follows: Gross Gross Fair Amortized Unrealized Unrealized Market Cost Gains Losses Value (in thousands) Available for Sale Securities Equity Securities $36,500 $ - $ - $36,500 Proceeds from the sale of marketable securities were $5,000,000 and $14,000,000 in the three and nine months ended June 25, 2005, respectively, with no gain or loss recorded. We use the specific identification method to determine the cost of securities sold. 19 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Our current cash and marketable securities 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. The Company's Board of Directors declared a regular quarterly cash dividend of $.125 per share of its common stock payable on July 6, 2005 to shareholders of record as of the close of business on June 15, 2005. In the three months ended June 25, 2005 and June 26, 2004, fluctuations in the valuation of the Mexican peso caused an increase of $116,000 and a decrease of $60,000, respectively, in stockholders' equity because of the translation of the net assets of the Company's Mexican frozen beverage subsidiary. In the nine month periods, there was an increase of $172,000 in fiscal year 2005 and a decrease of $78,000 in fiscal year 2004. On January 5, 2004, we acquired the assets of Country Home Bakers, Inc. Country Home Bakers, Inc., with its manufacturing facility in Atlanta, GA, 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. 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. 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. Annual sales are approximately $11 million. These acquisitions were accounted for under the purchase method of accounting, and their operations are included in the consolidated financial statements from their respective acquisition dates. We are in the process of obtaining a third party valuation of certain assets of 20 Snackworks, LLC; therefore the allocation of the purchase price is subject to revision. Our general-purpose bank credit line 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 June 25, 2005. Results of Operations Net sales increased $10,500,000 or 9% for the three months to $129,452,000 and $33,312,000 or 11% to $327,323,000 for the nine months ended June 25, 2005 compared to the three and nine months ended June 26, 2004. Excluding sales from the acquisition of Country Home Bakers, Inc. in January 2004 and Snackworks, LLC in March 2005, net sales increased $7,445,000 or 6% for the three months and $17,503,000 or 6% for the nine months ended June 25, 2005 compared to the three and nine months ended June 26, 2004. FOOD SERVICE Sales to food service customers increased $8,387,000 or 12% in the third quarter to $78,031,000 and increased $24,634,000 or 14% for the nine months. Excluding sales from the acquisition of Country Home Bakers, Inc. and Snackworks, LLC, sales to food service customers increased $5,332,000 or 8% in the third quarter and increased $8,925,000 or 5% for the nine months. Soft pretzel sales to the food service market increased 20% to $24,235,000 in the third quarter and 8% to $64,188,000 in the nine months. Excluding sales from the acquisition of Snackworks, LLC, soft pretzel sales increased 5% in the third quarter and 3% for the nine months. Increased sales to one customer accounted for two-thirds of the third quarter increase and almost all of the nine month increase. Italian ice and frozen juice treat and dessert sales increased 4%, or $575,000, to $13,402,000 in the three months and increased 7%, or $1,767,000, to $27,009,000 in the nine months due to increased sales to warehouse clubs, school food service and private label accounts. Churro sales to food service customers increased 13% to $3,805,000 in the third quarter and increased 10% to $10,714,000 in the nine months. One customer accounted for approximately 25% of the quarter and nine months increase with the balance coming from general increases across our customer base. Sales of bakery products increased $2,317,000 or 7% in the third quarter to 21 $33,934,000 and increased $16,082,000 or 20% for the nine months. Excluding sales from the acquisition of Country Home Bakers, Inc., sales of bakery products increased $3,602,000 or 4% in the nine months due to increased sales to existing customers and sales to new customers. In the third quarter, sales of our funnel cake product were up $1,094,000, or 80%, due to sales to one new 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 decreased $248,000 or 2% to $12,742,000 in the third quarter and increased $922,000, or 3%, in the nine months. Soft pretzel sales increased 16% to $4,923,000 for the quarter and increased 20% to $16,997,000 for the nine months due mainly to sales of PRETZELFILS in new markets and by increased sales of our regular SUPERPRETZEL in existing markets. Sales of frozen juices and ices decreased $560,000 or 6% to $8,680,000 in the third quarter and $599,000 or 4% to $14,979,000 in the nine months. Case sales of frozen juices and ices products were down 11% in the quarter and 8% for the nine months. Coupon costs, a reduction of sales, increased by $293,000, or 39%, in the second quarter and were up $1,036,000, or 50% in the nine months. THE RESTAURANT GROUP Sales of our Restaurant Group decreased 26% to $1,152,000 in the third quarter and 28% to $4,379,000 for the nine month period. The sales decreases were caused primarily by the closing or licensing of unprofitable stores in the past year. During the first nine months of this year, nine stores were closed or licensed to others, leaving a total of 21 open at quarter end. Operating income was impacted during the nine months by approximately $108,000 of store closing costs. FROZEN BEVERAGES Frozen beverage and related product sales increased $2,776,000 or 8% to $37,527,000 in the third quarter and $9,383,000 or 12% to $90,500,000 in the nine months. Beverage sales alone were essentially unchanged at $26,712,000 in the third quarter and $61,711,000 in the nine months. Managed service revenue increased 34% to $6,600,000 in the third quarter and 36% to $17,576,000 in the nine months. Sales of beverage machines were $4,993,000 22 higher this year than last in the nine month period with two customers accounting for more than half of the increase. In the third quarter, sales of machines were higher by $919,000 compared to last year. CONSOLIDATED Gross profit as a percentage of sales was 36% and 33% in both year's third quarter and nine months, respectively. The percentages remained constant because increases in efficiencies due to higher volume in our food service segment offset higher coupon expense in our retail supermarket business, increased sales of low margin beverage machines in our frozen beverage segment and higher group medical and liability insurance costs throughout our business. Total operating expenses increased $2,059,000 in the third quarter but as a percentage of sales were 24% in both year's quarters. For the nine months, operating expenses increased $7,422,000 but as a percentage of sales were 26% for both years. Marketing expenses decreased to 12% of sales in this year's third quarter from 13% last year and were at 13% in both years' nine month period although they dropped about 3/4 of a percentage point as a percent of sales in the nine month period. The percentage decreases were the result of controlled spending throughout all of our businesses and the increased level of sales. Distribution expenses were 8% of sales in the third quarter for both years and increased to 9% of sales in the nine months from 8% of sales last year primarily because of higher fuel costs and third party trucking costs. Administrative expenses as a percent of sales were 3% in both year's third quarter and were 4% for the nine months in both years. Operating income increased $1,966,000 or 14% to $15,537,000 in the third quarter and $3,411,000 or 16% to $24,884,000 in the nine months as a result of the aforementioned. Operating income was impacted by approximately $300,000 of higher group medical and liability insurance costs in the third quarter compared to a year ago and by approximately $1 million for the nine months due in large part to increased workers compensation claims costs. Manufacturing plant utilities costs were higher by about $200,000 for the quarter and $540,000 for the nine months. We expect that continuing increases in the cost of 23 utilities will continue to have a significant impact on our operating results. The impact of commodity cost increases has overall diminished from the levels of increases that were reported in previous filings. Investment income increased by $306,000 to $429,000 in this year's third quarter and by $791,000 in the nine months primarily due to an increase in the general level of interest rates. The effective income tax rate has been estimated at 38% for the third quarter and nine months compared to 36% in last year's periods due to estimated increases in state tax payments. Net earnings increased $1,174,000 or 13% in the three month period to $9,879,000 and increased 16% or $2,279,000 in the nine months this year from $13,872,000 last year. 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 2004 annual report on Form 10-K filed with the SEC. Item 4. Controls and Procedures Quarterly evaluation of the Company's Disclosure and Internal Controls. The Company evaluated (i) the effectiveness of the design and operation of its disclosure controls and procedures (the "Disclosure Controls") as of the end of the period covered by this Form 10-Q and (ii) any changes in internal controls over financial reporting that occurred during the third quarter of its fiscal year. This evaluation ("Controls Evaluation") was done under the supervision and with the participation of management, including the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"). Limitations on the Effectiveness of Controls. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system 24 must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected. The Company conducts periodic evaluations of its internal controls to enhance, where necessary, its procedures and controls. Conclusions. Based upon the Controls Evaluation, the CEO and CFO have concluded that the Disclosure Controls are effective in reaching a reasonable level of assurance that information required to be disclosed by the Company in the reports that it files or submits is recorded, processed, summarized and reported within the time period specified in the SEC's rules and forms and that management is timely alerted to material information relating to the Company during the period when its periodic reports are being prepared. Additionally, in accord with the U.S. Securities and Exchange Commission's requirements, the CEO and CFO conducted an evaluation of the Company's internal control over financial reporting (the "Internal Controls") to determine whether there have been any changes in Internal Controls that occurred during the quarter which have materially affected or which are reasonably likely to materially affect Internal Controls. Based on this evaluation, there have been no such changes in Internal Controls during the quarter covered by this report. 25 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K a) Exhibits 31.1 & Certification Pursuant to Section 302 of 31.2 the Sarbanes-Oxley Act of 2002 99.5 Certification Pursuant to the 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 b) Reports on Form 8-K - Reports on Form 8-K were filed on April 21, 2005 and May 26, 2005. 26 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: July 20, 2005 /s/ Gerald B. Shreiber Gerald B. Shreiber President Dated: July 20, 2005 /s/ Dennis G. Moore Dennis G. Moore Senior Vice President and Chief Financial Officer 27 Exhibit 31.1 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Dennis G. Moore, certify that: 1. I have reviewed this report on Form 10-Q of J & J Snack Foods Corp.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls and procedures for financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal controls and procedures for financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, 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; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's third fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: July 20, 2005 /s/ Dennis G. Moore Dennis G. Moore Chief Financial Officer Exhibit 31.2 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Gerald B. Shreiber, certify that: 1. I have reviewed this report on Form 10-Q of J & J Snack Foods Corp.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls and procedures for financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal controls and procedures for financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, 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; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's third fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: July 20, 2005 /s/ Gerald B. Shreiber Gerald B. Shreiber Chief Executive Officer Exhibit 99.5 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code), each of the undersigned officers of J & J Snack Foods Corp. (the "Company"), does hereby certify with respect to the Quarterly Report of the Company on Form 10-Q for the quarter ended June 25, 2005 (the "Report") that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: July 20, 2005 /s/ Dennis G. Moore Dennis G. Moore Chief Financial Officer Dated: July 20, 2005 /s/ Gerald B. Shreiber Gerald B. Shreiber Chief Executive Officer The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code) and is not being filed as part of the Report or as a separate disclosure document.