J&J SNACK FOODS CORP

NOTE I

– INCOME TAXES

Income tax expense (benefit) is as follows:

	Fiscal year ended
	September 30,			September 24,			September 26,
	2017			2016			2015
	(in thousands)
Current
U.S. Federal	$	27,142		$	25,126		$	33,348
Foreign		2,770			2,433			2,260
State		5,227			5,622			6,294
Total current expense		35,139			33,181			41,902

Deferred
U.S. Federal	$	6,857		$	6,444		$	(109	)
Foreign		(422	)		(145	)		(34	)
State		1,452			1,364			(23	)
Total deferred expense(benefit)		7,887			7,663			(166	)
Total expense	$	43,026		$	40,844		$	41,736

The change in deferred taxes for the year ended

September 30, 2017

does

not

equal deferred tax expense in the amount of

$6,632,000

as a result of purchase accounting related to the Hill & Valley acquisition

The provisions for income taxes differ from the amounts computed by applying the statutory federal income tax rate of approximately

35%

to earnings before income taxes for the following reasons:

	Fiscal year ended
	September 30,			September 24,			September 26,
	2017			2016			2015
	(in thousands)

Income taxes at federal statutory rates	$	42,770		$	40,887		$	39,172
Increase (decrease)in taxes resulting from:

State income taxes, net of federal income tax benefit		4,341			4,541			4,196
Domestic production activities deduction		(1,820	)		(2,100	)		(2,100	)
Increase in gross unrecognized tax benefits		20			20			39
(Decrease) increase in federal valuation allowance		(6	)		240			1,366
Share based compensation		(1,923	)		(1,109	)		308
Other, net		(356	)		(1,635	)		(1,245	)
Income tax expense	$	43,026		$	40,844		$	41,736

Deferred tax assets and liabilities consist of the

following:

	September 30,			September 24,
	2017			2016
	(in thousands)
Deferred tax assets
Vacation accrual	$	1,740		$	1,646
Capital loss carry forwards		1,668			1,674
Insurance accrual		3,225			3,317
Deferred income		927			112
Allowances		1,991			1,514
Inventory capitalization		1,235			954
Share-based compensation		1,607			1,253
Net Operating Loss		1,559			1,691
Total deferred tax assets		13,952			12,161
Valuation allowance		(1,668	)		(1,674	)
Total deferred tax assets, net		12,284			10,487

Deferred tax liabilities
Amortization of goodwill and other intangible assets		35,043			27,358
Depreciation of property and equipment		39,946			31,315
Total deferred tax liabilities		74,989			58,673
Total deferred tax liabilities, net	$	62,705		$	48,186

As of

September 30, 2017,

we have federal and state capital loss carry forwards of approximately

$4.6

million from the sale of marketable securities in fiscal years

2015

and

2016.

These carry forwards will expire in

2020,

2021

and

2022.

As we have

foreseeable capital gains that would allow us to use this asset, we have recorded a valuation allowance for the full amount of this deferred tax asset.

As of

September 30, 2017,

we have a federal net operating loss carry forward of approximately

million from the PHILLY SWIRL acquisition. These carry forwards are subject to an annual limitation under Code Section

382

of approximately

$378,000

and will expire in

2033.

We have determined there are

limitations to the total use of this tax asset and accordingly, have

not

recorded a valuation allowance for this deferred tax asset.

We have undistributed earnings of our Mexican and Canadian subsidiaries that are considered to be indefinitely reinvested and accordingly

provision for US federal and state income taxes has been provided thereon.