UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X☒)ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 201728, 2019
( )☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
Commission File No. 0-14616000-14616
Registrant's telephone number, including area code: (856) 665-9533
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 Identification No.) |
incorporation or organization) | |
6000 Central Highway | 08109 |
Pennsauken, New Jersey | (Zip Code) |
(Address of principal executive offices) |
Registrant's telephone number, including area code: (856) 665-9533
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbols(s) | Name of Each Exchange on Which Registered |
Common Stock, no par value | JJSF | The NASDAQ Global Select Market |
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes _X_☒ No __☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ___☐ No X ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X ☒ No ___☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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).
Yes X ☒ No ___☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not containedcontained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ___☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | |||
Non-accelerated filer
| Accelerated filer ☐ Smaller reporting company | ☐ | |
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes___Yes ☐ No X_ ☒
March 24, 201729, 2019 was the last business day of the registrant’sregistrant’s most recently completed second fiscal quarter. The aggregate market value of the registrant’s common stock held by non-affiliates was $2,024,207,044,$2,393,370,414, based on the last sale price on March 24, 201729, 2019 of $136.31$158.54 per share. As of November 15, 2017, the latest practicable date, 18,664,02411, 2019, 18,898,529 shares of the registrant’s common stock were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement for its Annual Meeting of Shareholders scheduled for February 9, 201811, 2020 are incorporated by reference into Part III of this report.
J & J SNACK FOODS CORP.
2017 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Page | ||||
PART I |
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Note About Forward-Looking Statements | 1 | |||
Item 1 | Business | 1 | ||
Item 1A | Risk Factors | 6 | ||
Item 1B | Unresolved Staff Comments | |||
Item 2 | Properties | |||
Item 3 | Legal Proceedings | |||
Item 4 | Mine Safety Disclosures | |||
PART II | ||||
Item 5 | Market For | |||
Item 6 | Selected Financial Data | |||
Item 7 |
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Item 7A | Quantitative And Qualitative Disclosures About Market Risk | |||
Item 8 | Financial Statements And Supplementary Data | |||
Item 9 | Changes In And Disagreements With Accountants On Accounting And Financial Disclosure | |||
Item 9A | Controls and Procedures | |||
Item 9B | Other Information |
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PART III | ||||
Item 10 | Directors, Executive Officers and Corporate Governance | |||
Item 11 | Executive Compensation | |||
Item 12 | Security Ownership Of Certain Beneficial Owners And Management And Related Stockholder Matters | |||
Item 13 | Certain Relationships And Related Transactions, and Director Independence | |||
Item 14 | Principal Accountant Fees and Service | |||
PART IV | ||||
Item 15 | Exhibits, Financial Statement Schedules |
Note About Forward-Looking Statements
In addition to historical information, this report contains forward-looking statements. The forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. Important factors that might cause such a difference include, but are not limited to, those discussed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after the date hereof.
Part I
Item 1. | Business |
General
J & J Snack Foods Corp. (the “Company” or “J & J”) manufactures snack foods and distributes frozen beverages which it markets nationally to the food service and retail supermarket industries. The Company’s principal snack food products are soft pretzels marketed primarily under the brand names SUPERPRETZEL, BRAUHAUS, AUNTIE ANNE’S* and BAVARIAN BAKERY, frozen juice treats and desserts marketed primarily under the LUIGI’S, WHOLE FRUIT, ICEE, PHILLY SWIRL, SOUR PATCH** and MINUTE MAID*** brand names, churros marketed primarily under the TIO PEPE’S and CALIFORNIA CHURROS and OREO** brand names and bakery products sold primarily under the READI-BAKE, COUNTRY HOME, MARY B’S, DADDY RAY’S and HILL & VALLEY brand names as well as for private label and contract packing. J & J believes it is the largest manufacturer of soft pretzels in the United States. Other snack food products include funnel cake sold under THE FUNNEL CAKE FACTORY brand and dough enrobed handheld products sold under the PATIO brand and other smaller brands as well. The Company’s principal frozen beverage products are the ICEE brand frozen carbonated beverage and the SLUSH PUPPIE brand frozen non-carbonated beverage.
The Company’s Food Service and Frozen Beverages sales are made primarily to food service customers including snack bar and food stand locations in leading chain, department, discount, warehouse club and convenience stores; malls and shopping centers; fast food and casual dining restaurants; stadiums and sports arenas; leisure and theme parks; movie theatres; independent retailers; and schools, colleges and other institutions. The Company’s retail supermarket customers are primarily supermarket chains.
The Company was incorporated in 1971 under the laws of the State of New Jersey.
The Company has made acquisitions as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes thereto.
The Company operates in three business segments: Food Service, Retail Supermarkets and Frozen Beverages. These segments are described below.
The Chief Operating Decision Maker for Food Service and Retail Supermarkets 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 resourcesresources to each individual segment. Sales and operating income are key variables monitored by the Chief Operating Decision Makers and management when determining each segment’s and the company’s financial condition and operating performance. In addition, the Chief Operating Decision Makers review and evaluate depreciation, capital spending and assets of each segment on a quarterly basis to monitor cash flow and asset needs of each segment (see Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8 – Financial Statements and Supplementary Data for financial information about segments).
* | AUNTIE ANNE’S is a registered trademark of Auntie Anne’s LLC |
** | SOUR PATCH is a registered trademark of Mondelçz International Group |
*** | Minute Maid is a registered trademark of the Coca-Cola Company |
Food Service
The primary products sold by the food service segment are soft pretzels, frozen juice treats and desserts, churros, dough enrobed handheld products and baked goods. Our customers in the food service segment include snack bars and food stands in chain, department and discount stores; malls and shopping centers; casual dining restaurants; fast food and casual dining restaurants; 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 channel are soft pretzel products – including SUPERPRETZEL and AUNTIE ANNE’S, frozen juice treats and desserts including LUIGI’S Real Italian Ice, MINUTE MAID Juice Bars and Soft Frozen Lemonade, WHOLE FRUIT frozen fruit bars and sorbet, PHILLY SWIRL cups and sticks, SOUR PATCH sticks, ICEE Squeeze-Up Tubes and dough enrobed handheld products including PATIO burritos. Within the retail supermarket channel, our frozen and prepackaged products are purchased by the consumer for consumption at home.
Frozen Beverages
We sell frozen beverages to the food service industry primarily under the names ICEE, SLUSH PUPPIE and PARROT ICE in the United States, Mexico and Canada. We also provide repair and maintenance service to customers for customers’ owned equipment.
Products
Soft Pretzels
The Company’s soft pretzels are sold under many brand names; some of which are: SUPERPRETZEL, PRETZEL FILLERS, PRETZELFILS, GOURMET TWISTS, MR. TWISTER, SOFT PRETZEL BITES, SOFTSTIX, SOFT PRETZEL BUNS, TEXAS TWIST,BAVARIAN BAKERY,SUPERPRETZEL BAVARIAN, NEW YORK PRETZEL, KIM & SCOTT’S GOURMET PRETZELS, SERIOUSLY TWISTED!, BRAUHAUS, AUNTIE ANNE’S***ANNE’S AND LABRIOLA; and, to a lesser extent, under private labels.
Soft pretzels are sold in the Food Service and Retail Supermarket segments. Soft pretzel sales amounted to 20%21% of the Company’s revenue in fiscal year 2017,2019, 21% in 2018 and 20% in 2016 and 21% in 2015.2017
Certain of the Company’s soft pretzels qualify under USDA regulations as the nutritional equivalent of bread for purposes of the USDA school lunch program, thereby enabling a participating school to obtain partial reimbursement of the cost of the Company’s soft pretzels from the USDA.
The Company’s soft pretzels are manufactured according to a proprietary formula. Soft pretzels, ranging in size from one to twenty-four ounces in weight, are shaped and formed by the Company’s twister machines. These soft pretzel tying machines are automated, high-speed machines for twisting dough into the traditional pretzel shape. Additionally, we make soft pretzels which are extruded or shaped by hand. Soft pretzels, after processing, are primarily quick-frozen in either raw or baked form and packaged for delivery.
The Company’s principal marketing program in the Food Service segment includes supplying ovens, mobile merchandisers, display cases, warmers and similar merchandising equipment to the retailer to prepare and promote the sale of soft pretzels. Some of this equipment is proprietary, including combination warmer and display cases that reconstitute frozen soft pretzels while displaying them, thus eliminating the need for an oven. The Company retains ownership of the equipment placed in customer locations, and as a result, customers are not required to make an investment in equipment.
Frozen Juice Treats and Desserts
The Company’s frozen juice treats and desserts are marketed primarily under the LUIGI’S, WHOLE FRUIT, PHILLY SWIRL, SOUR PATCH, ICEE and MINUTE MAID brand names. Frozen juice treats and desserts are sold in the Food Service and Retail Supermarkets segments. Frozen juice treats and dessert sales were 11%10% of the Company’s revenue in fiscal year 2017, 12%2019, 10% in 20162018 and 13%11% in 2015.2017.
The Company’s school food service LUIGI’S and WHOLE FRUIT frozen juice bars and cups contain three to four ounces of 100% apple or pineapple juice with no added sugar and 100% of the daily US FDA value of vitamin C. The juice bars are produced in various flavors and are packaged in a sealed push-up paper container referred to as the Milliken M-pak, which the Company believes has certain sanitary and safety advantages.
The balance of the Company’s frozen juice treats and desserts products are manufactured from water, sweeteners and fruit juice concentrates in various flavors and packaging including cups, tubes, sticks, M-paks and pints. Several of the products contain ice cream and WHOLE FRUIT contains pieces of fruit.
Churros
The Company’s churros are sold primarily under the TIO PEPE’S and CALIFORNIA CHURROS and OREO brand names. Churros are sold to the Food Service and Retail Supermarkets segments. Churro sales were 6% of the Company’s sales in fiscal year 2017,2019, 6% in fiscal year 20162018 and 6% in 2015.2017. Churros are Hispanic pastries in stick form which the Company produces in several sizes according to a proprietary formula. The churros are deep fried, frozen and packaged. At food service point-of-sale they are reheated and topped with a cinnamon sugar mixture. The Company also sells fruit and crème-filled churros. The Company supplies churro merchandising equipment similar to that used for its soft pretzels.
Handheld Products
The Company's dough enrobed handheld products are marketed under the PATIO, SUPREME STUFFERS and SWEET STUFFERS brand names and under private labels. Handheld products are sold to the Food Service and Retail Supermarket segments. Handheld product sales amounted to 5%4% of the Company’s sales in fiscal year 2017, 4%2019, 5% in 20162018 and 4%5% in 2015.2017.
Bakery Products
The Company’s bakery products are marketed under the MRS. GOODCOOKIE, READI-BAKE, COUNTRY HOME, MARY B’S, DADDY RAY’S and HILL & VALLEY brand names, and under private labels. Bakery products include primarily biscuits, fig and fruit bars, cookies, breads, rolls, crumb, muffins and donuts. Bakery products are sold to the Food Service segment. Bakery products sales amounted to 32% of the Company’s sales in fiscal year 2017, 30%2019, 33% in 20162018 and 31%32% in 2015.2017.
Frozen Beverages
The Company markets frozen beverages primarily under the names ICEE, SLUSH PUPPIE and PARROT ICE which are sold primarily in the United States, Mexico and Canada. Frozen beverages are sold in the Frozen Beverages segment.
Frozen beverage sales amounted to 15% of the Company’s revenue in fiscal year 2017,2019, 15% in 20162018 and 15% in 2015.2017.
Under the Company’s principal marketing program for frozen carbonated beverages, it installs frozen beverage dispensers for its ICEE brand at customer locations and thereafter services the machines, arranges to supply customers with ingredients required for production of the frozen beverages, and supports customer retail sales efforts with in-store promotions and point-of-sale materials. In most cases, the Company retains ownership of its dispensers, and as a result, customers are not required to make an investment in equipment or arrange for the ingredients and supplies necessary to produce and market the frozen beverages. The Company sells frozen non-carbonated beverages under the SLUSH PUPPIE and PARROT ICE brands through a distributor network and through its own distribution network. The Company also provides repair and maintenance service to customers for customers’ owned equipment and sells equipment in its Frozen Beverages segment. Revenue from equipment sales and repair and maintenance services totaled 9%11% of the Company’s sales in fiscal 2017,year 2019, 10% in 20162018 and 9% in 2015.2017.
Each new frozen carbonated customer location requires a frozen beverage dispenser supplied by the Company or by the customer. Company-supplied frozen carbonated dispensers are purchased from outside vendors or rebuilt by the Company.
The Company provides managed service and/or products to approximately 125,000145,000 Company-owned and customer-owned dispensers.
The Company has the rights to market and distribute frozen beverages under the name ICEE to the entire continental United States (except for portions of fourtwo states) as well as internationally.
Other Products
Other products sold by the Company include funnel cakes sold under the FUNNEL CAKE FACTORY brand name and smaller amounts of various other food products. These products are sold in the Food Service and Frozen Beverages segments.
Customers
The Company sells its products to two principal channels: food service and retail supermarkets. The primary products sold to the food service channel are soft pretzels, frozen beverages, frozen juice treats and desserts, churros, dough enrobed handheld products and baked goods. The primary products sold to the retail supermarket channel are soft pretzels, frozen juice treats and desserts and dough enrobed handheld products.
We have several large customers that account for a significant portion of our sales. Our top ten customers accounted for 42%43%, 42%43% and 43%42% of our sales during fiscal years 2017, 20162019, 2018 and 2015,2017, respectively, with our largest customer accounting for 9%11% of our sales in 2017, 8%2019, 9-1/2% of our sales in 20162018 and 8%9-1/2% of our sales in 2015. Three2017. Four of the ten customers are food distributors who sell our product to many end users. The loss of one or more of our large customers could adversely affect our results of operations. These customers typically do not enter into long-term contracts and make purchase decisions based on a combination of price, product quality, consumer demand and customer service performance. If our sales to one or more of these customers are reduced, this reduction may adversely affect our business. If receivables from one or more of these customers become uncollectible, our operating income would be adversely impacted.
The Food Service and the Frozen Beverages segments sell primarily to food service channels. The Retail Supermarkets segment sells primarily to the retail supermarket channel.
The Company’s customers in the food service segment include snack bars and food stands in chain, department and mass merchandising stores, malls and shopping centers, fast food and casual dining restaurants, stadiums and sports arenas, leisure and theme parks, convenience stores, movie theatres, warehouse club stores, schools, colleges and other institutions, and independent retailers. Machines and machine parts are sold to other food and beverage companies. Within the food service industry, the Company’s products are purchased by the consumer primarily for consumption at the point-of-sale.
The Company sells its products to an estimated 85-90% of supermarkets in the United States. Products sold to retail supermarket customers are primarily soft pretzel products, including SUPERPRETZEL and AUNTIE ANNE’S, frozen juice treats and desserts including LUIGI’S Real Italian Ice, MINUTE MAID Juice Bars and Soft Frozen Lemonade, WHOLE FRUIT frozen fruit bars, WHOLE FRUIT Sorbet, PHILLY SWIRL cups and sticks, MARY B’S biscuits and dumplings, DADDY RAY’S fig and fruit bars, HILL & VALLEY baked goods, ICEE Squeeze-Up Tubes and PATIO burritos and OREO Churros.burritos. Within the retail supermarket industry, the Company’s frozen and prepackaged products are purchased by the consumer for consumption at home.
Marketing and Distribution
The Company has developed a national marketing program for its products. For the Food Service and Frozen Beverages segments’ customers, this marketing program includes providing ovens, mobile merchandisers, display cases, warmers, frozen beverage dispensers and other merchandising equipment for the individual customer’s requirements and point-of-sale materials as well as participating in trade shows and in-store demonstrations. The Company’s ongoing advertising and promotional campaigns for its Retail Supermarket segment’s products include trade shows, newspaper advertisements with coupons and consumer advertising campaigns.
The Company develops and introduces new products on a routine basis. The Company evaluates the success of new product introductions on the basis of sales levels, which are reviewed no less frequently than monthly by the Company’s Chief Operating Decision Makers.
The Company’s products are sold through a network of about 100 food brokers, independent sales distributors and the Company’s own direct sales force. For its snack food products, the Company maintains warehouse and distribution facilities in Pennsauken, Bellmawr and Bridgeport, New Jersey; Vernon (Los Angeles) and Colton, California; Brooklyn, New York; Scranton, Pittsburgh, Hatfield and Lancaster, Pennsylvania; Carrollton (Dallas), Texas; Atlanta, Georgia; Moscow Mills (St. Louis), Missouri; Pensacola and Tampa, Florida; Solon, Ohio; Weston, Oregon; Holly Ridge, North Carolina; Alsip (Chicago) and Rock Island, Illinois. Frozen beverages and machine parts are distributed from 164166 Company managed warehouse and distribution facilities located in 4443 states, Mexico and Canada, which allow the Company to directly service its customers in the surrounding areas. The Company’s products are shipped in refrigerated and other vehicles from the Company’s manufacturing and warehouse facilities on a fleet of Company operated tractor-trailers, trucks and vans, as well as by independent carriers.
Seasonality
The Company’s sales are seasonal because frozen beverage sales and frozen juice treats and desserts sales are generally higher during the warmer months.
Trademarks and Patents
The Company has numerous trademarks, the most important of which are SUPERPRETZEL, TEXAS TWIST, NEW YORK PRETZEL, BAVARIAN BAKERY, MR. TWISTER, SOFT PRETZEL BITES, SOFTSTIX, PRETZEL FILLERS, PRETZELFILS, BRAUHAUS and LABRIOLA for its pretzel products; SHAPE-UPS, WHOLE FRUIT, PHILLY SWIRL and LUIGI’S for its frozen juice treats and desserts; TIO PEPE’S and CALIFORNIA CHURROS for its churros; ARCTIC BLAST, SLUSH PUPPIE and PARROT ICE for its frozen beverages; FUNNEL CAKE FACTORY for its funnel cake products, PATIO for its handheld burritos and MRS. GOODCOOKIE, READI-BAKE, COUNTRY HOME, CAMDEN CREEK, MARY B’S, DADDY RAY’S and HILL & VALLEY for its bakery products.
The Company markets frozen beverages under a license to use the trademark ICEE in all of the continental United States, except for portions of four states, and in Mexico and Canada. Additionally, the Company has the international rights to the trademark ICEE.
The trademarks, when renewed and continuously used, have an indefinite term and are considered important to the Company as a means of identifying its products. The Company considers its trademarks important to the success of its business.
The Company has numerous patents related to the manufacturing and marketing of its product.
Supplies
The Company’s manufactured products are produced from raw materials which are readily available from numerous sources. With the exception of the Company’s churro production equipment, funnel cake production equipment and soft pretzel twisting equipment, all of which are made for J & J by independent third parties, and certain specialized packaging equipment, the Company’s manufacturing equipment is readily available from various sources. Syrup for frozen beverages is purchased primarily from The Coca-Cola Company, Dr Pepper Snapple Group, Inc., the Pepsi Cola Company, and Jogue, Inc. Cups, straws and lids are readily available from various suppliers. Parts for frozen beverage dispensing machines are purchased from several sources. Frozen beverage dispensers are purchased primarily from IMI Cornelius, Inc. and FBD Partnership.
Competition
Snack food and bakery products markets are highly competitive. The Company’s principal products compete against similar and different food products manufactured and sold by numerous other companies, some of which are substantially larger and have greater resources than the Company. As the soft pretzel, frozen juice treat and dessert, bakery products and related markets evolve, additional competitors and new competing products may enter the markets. Competitive factors in these markets include product quality, customer service, taste, price, identity and brand name awareness, method of distribution and sales promotions.
The Company believes it is the only national distributor of soft pretzels. However, there are numerous regional and local manufacturers of food service and retail supermarket soft pretzels as well as several chains of retail pretzel stores.
In Frozen Beverages the Company competes directly with other frozen beverage companies. These include several companies which have the right to use the ICEE name in portions of four states. There are many other regional frozen beverage competitors throughout the country and one large retail chain which uses its own frozen beverage brand.
The Company competes with large soft drink manufacturers for counter and floor space for its frozen beverage dispensing machines at retail locations and with products which are more widely known than the ICEE, SLUSH PUPPIE and PARROT ICE frozen beverages.
The Company competes with a number ofseveral other companies in the frozen juice treat and dessert and bakery products markets.
Risks Associated with Foreign Operations
Foreign operations generally involve greater risk than doing business in the United States. Foreign economies differ favorably or unfavorably from the United States’ economy in such respects as the level of inflation and debt, which may result in fluctuations in the value of the country’s currency and real property. Sales of our foreign operations were $31,001,000, $27,075,000$33,906,000, $32,459,000 and $25,313,000$31,001,000 in fiscal years 2017, 20162019, 2018 and 2015,2017, respectively. At September 30, 2017,28, 2019, the total assets of our foreign operations were approximately $39$26 million or 4.5%2.6% of total assets.assets which was significantly less than the prior year as we moved cash to the United States. At September 24, 2016,29, 2018, the total assets of our foreign operations were approximately $29$45 million or 3.7%4.8% of total assets.
Employees
The Company has about 4,2004,600 full and part time employees and approximately 1,500 workers employed by staffing agencies as of September 30, 2017.28, 2019. About 1,200 production and distribution employees throughout the Company are covered by collective bargaining agreements.
The Company considers its employee relations to be good.
Available Information
The Company’s internet address is www.jjsnack.com.www.jjsnack.com. On the investor relations section of its website, the Company provides free access to its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to these reports, as soon as reasonably practicable after such materials are electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”). The information on the website listed above is not and should not be considered part of this annual report on Form 10-K and is not incorporated by reference in this document.
Item 1A. | Risk Factors |
You should carefully consider the risks described below, together with all of the other information included in this report, in considering our business and prospects. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties not presently known to us or that we currently deem insignificant may also impair our business operations. Following is a discussion of known potentially significant risks which could result in harm to our business, financial condition or results of operations.
Risks of Shortages or Increased Cost of Raw Materials
We are exposed to the market risks arising from adverse changes in commodity prices, affecting the cost of our raw materials and energy. The raw materials and energy which we use for the production and distribution of our products are largely commodities that are subject to price volatility and fluctuations in availability caused by changes in global supply and demand, weather conditions, agricultural uncertainty or governmental controls. We purchase these materials and energy mainly in the open market. Our procurement practices are intended to reduce the risk of future price increases, but also may potentially limit the ability to benefit from possible price decreases. If commodity price changes result in increases in raw materials and energy costs, we may not be able to increase our prices to offset these increased costs without suffering reduced volume, revenue and operating income.
General Risks of the Food Industry
Food processors are subject to the risks of adverse changes in general economic conditions; evolving consumer preferences and nutritional and health-related concerns; changes in food distribution channels; federal, state and local food processing controls or other mandates; changes in federal, state, local and international laws and regulations, or in the application of such laws and regulations; consumer product liability claims; risks of product tampering;tampering and contamination; and negative publicity surrounding actual or perceived product safety deficiencies. The increased buying power of large supermarket chains, other retail outlets and wholesale food vendors could result in greater resistance to price increases and could alter the pattern of customer inventory levels and access to shelf space.
Risks of Shortages or Increased Costs of Labor
Our businesses operate in highly competitive markets. The labor market in the United States is very competitive and the unemployment rate is at historic lows. We depend on the skills, working relationships, and continued services of key personnel, including our experienced management team. We must hire, train and develop effective employees. We compete with other companies both within and outside of our industry for talented personnel, and we may lose key personnel or fail to attract, train, and retain other talented personnel. In addition, our ability to achieve our operating goals depends on our ability to identify, hire, train, and retain qualified individuals. Any such loss or failure could adversely affect our product sales, financial condition, and operating results.
Environmental Risks
The disposal of solid and liquid waste material resulting from the preparation and processing of foods is subject to various federal, state and local laws and regulations relating to the protection of the environment. Such laws and regulations have an important effect on the food processing industry as a whole, requiring substantially all firms in the industry to incur material expenditures for modification of existing processing facilities and for construction of upgraded or new waste treatment facilities.
We cannot predict what environmental legislation or regulations will be enacted in the future, how existing or future laws or regulations will be administered or interpreted or what environmental conditions may be found to exist. Enactment of more stringent laws or regulations or more strict interpretation of existing laws and regulations may require additional expenditures by us, some of which could be material.
Risks Resulting from Customer Concentration
We have several large customers that account for a significant portion of our sales. Our top ten customers accounted for 42%43%, 42%43% and 43%42% of our sales during fiscal years 2017, 20162019, 2018 and 2015,2017, respectively, with our largest customer accounting for 9%11% of our sales in 2017, 8%2019, 9-1/2% of our sales in 20162018 and 8%9-1/2% of our sales in 2015. Three2017.
Four of the ten customers are food distributors who sell our product to many end users. The loss of one or more of our large customers could adversely affect our results of operations. These customers typically do not enter into long-term contracts and make purchase decisions based on a combination of price, product quality, consumer demand and customer service performance. If our sales to one or more of these customers are reduced, this reduction may adversely affect our business. If receivables from one or more of these customers become uncollectible, our operating income would be adversely impacted.
Competition
Our businesses operate in highly competitive markets. We compete against national and regional manufacturers and distributors on the basis of price, quality, product variety and effective distribution. Many of our major competitors in the market are larger and have greater financial and marketing resources than we do. Increased competition and anticipated actions by our competitors could lead to downward pressure on prices and/or a decline in our market share, either of which could adversely affect our results. See “Competition” in Item 1 for more information about our competitors.
Risks Relating to Manufacturing and Distribution
Our ability to purchase, manufacture and distribute products is critical to our success. DamageBecause we source certain products from single manufacturing sites, it is possible that we could experience a production disruption that results in a reduction or disruptionelimination of the availability of some of our products. If we are not able to obtain alternate production capability in a timely manner, or on favorable terms, it could have a negative impact on our business, results of operations, financial condition and cash flows, including the potential for long-term loss of product placement with various customers. We are also subject to risks of other business disruptions associated with our dependence on production facilities and distribution systems. Natural disasters, terrorist activity, cyberattacks or other unforeseen events could interrupt production or distribution and have a material adverse effect on our business, results of operations, financial condition and cash flows, including the potential for long-term loss of product placement with our customers.
Risks Relating to the Availability and Costs of Transportation
Our ability to obtain adequate and reasonably priced methods of transportation to distribute our products, including refrigerated trailers for many of our products, is a key factor to our manufacturing or distribution capabilitiessuccess. Delays in transportation, including weather-related delays, could have a material adverse effect on our business and results of operations. Further, higher fuel costs and increased line haul costs due to weather, natural disaster, fireindustry capacity constraints, customer delivery requirements and a more restrictive regulatory environment could also negatively impact our financial results. We pay fuel surcharges that fluctuate with the price of diesel fuel to third-party transporters of our products, and such surcharges can be substantial. Any sudden or explosion, terrorism, pandemic, political upheaval, labor strikes, work stoppages or other reasonsdramatic increases in the price of diesel fuel would serve to increase our fuel surcharges and our cost of goods sold. If we were unable to pass higher freight costs to our customers in the form of price increases, those higher costs could impairhave a material adverse effect on our business, results of operations, financial condition and cash flows.
Risks Relating to Manufacturing Capacity Constraints
Our current manufacturing resources may be inadequate to meet significantly increased demand for some of our food products. Our ability to manufactureincrease our manufacturing capacity depends on many factors, including the equipment delivery, construction lead-times, installation, qualification, regulatory permitting and regulatory requirements. A lack of sufficient manufacturing capacity to meet demand could cause our customer service levels to decrease, which may negatively affect customer demand for our products and customer relations generally, which in turn could have a material adverse effect on our business, results of operations, financial condition and cash flows. In addition, operating facilities at or distributenear capacity may also increase production and distribution costs and negatively affect relations with our products.employees or contractors, which could result in disruptions in our operations.
New Jersey Law and Provisions of Our Amended and Restated Certificate of Incorporation and Bylaws May Inhibit a Change In Control
The New Jersey Shareholders' Protection Act, N.J.S.A. 14A:10A-1, et.et seq., may delay, deter or prevent a change in control by prohibiting the Company from engaging in a business combination transaction with an interested shareholder for a period of five years after the person becomes an interested stockholder, even if a majority of our shareholders believe a change in control would be in the best interests of the Company and its shareholders. In addition, our Amended and Restated Certificate of Incorporation and Bylaws contain provisions that may delay, deter or prevent a future acquisition of J & J Snack Foods Corp. not approved by our Board of Directors. This could occur even if our shareholders are offered an attractive value for their shares or if a substantial number or even a majority of our shareholders believe the takeover is in their best interest. These provisions are intended to encourage any person interested in acquiring us to negotiate with and obtain the approval of our Board of Directors in connection with the transaction. Provisions of our Amended and Restated Certificate of Incorporation and Bylaws that could delay, deter or prevent a future acquisition include the following:
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Risks Relating to Gerald B. Shreiber
GeraldGerald B. Shreiber is the founder, President, Chief Executive Officer and Chairman of the Board of Directors of the Company and the current beneficial owner of 20%19% of its outstanding common stock. Our Amended and Restated Certificate of Incorporation provides that Mr. Shreiber has three votes on any matter to be acted upon by the Board of Directors (subject to certain adjustments). Therefore, he and one other director would have the ability to approve any matter before the Board. The performance of thisthe Company is greatly impacted by his leadership and decisions. His retirement, disability or death may have a significant impact on our future operations.
Risk Related to Increases in our Health Insurance Costs and Costs of Compliance with the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010
The costs of employee health care insurance have been increasing in recent years due to rising health care costs, legislative changes, and general economic conditions. Additionally, we may incur additional costs because of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the “Health Care Reform Laws”). Provisions of these laws have become and will become effective over the past several years and at various dates over the next several years. Because of the breadth and complexity of these laws and the phased-in nature of the newhealth care regulations as well as other health care reform legislation considered by Congress and state legislatures, we cannot predict with certainty the future effect of these laws on us. A continued increase in health care costs or additional costs incurred as a result of the Health Care Reform Laws or the enforcement of the Health Care Reform Laws or other future health care reform laws imposed by Congress or state legislations could have a negative impact on our financial position and results of operations.
Risk Related to Product Changes
There are risks in the marketplace related to trade and consumer acceptance of product improvements, packing initiatives and new product introductions.
Risks Related to Changes in the Business
Our ability to successfully manage changes to our business processes, including selling, distribution, product capacity, information management systems and the integration of acquisitions, will directly affect our results of operations.
Risks Associated with Foreign Operations
Foreign operations generally involve greater risk than doing business in the United States. Foreign economies differ favorably or unfavorably from the United States’ economy in such respects as the level of inflation and debt, which may result in fluctuations in the value of the country’s currency and real property. Further, there may be less government regulation in various countries, and difficulty in enforcing legal rights outside the United States. Additionally, in some foreign countries, there is the possibility of expropriation or confiscatory taxation limitations on the removal of property or other assets, political or social instability or diplomatic developments which could affect the operations and assets of U.S. companies doing business in that country. Sales of our foreign operations were $31,001,000, $27,075,000$33,906,000, $32,459,000 and $25,313,000$31,001,000 in fiscal years 2017, 20162019, 2018 and 2015,2017, respectively. At September 30, 2017,28, 2019, the total assets of our foreign operations were approximately $39$26 million or 4.5%2.6% of total assets.assets which was significantly less than the prior year as we moved cash to the United States. At September 24, 2016,29, 2018, the total assets of our foreign operations were approximately $29$45 million or 3.7%4.8% of total assets.
Risks associatedAssociated with our information technology systemsInformation Technology Systems
The efficient operation of our business depends on our information technology systems. We rely on our information technology systems to effectively manage our business data, communications, supply chain, manufacturing, order entry and fulfillment, and other business processes. The failure of our information technology systems (including those provided to us by third parties) to perform as we anticipate could disrupt our business and could result in billing, collecting, and ordering errors, processing inefficiencies, and the loss of sales and customers, causing our business and results of operations to suffer.
In addition, ourOur information technology systems may be vulnerable to damage or interruption from circumstances beyond our control, including fire, natural disasters, systems failures, security breaches or intrusions (including theft of customer, consumer or other confidential data), and viruses. If we are unable to prevent physical and electronic break-ins, cyber-attacks and other information security breaches, we may suffer financial and reputational damage, be subject to litigation or incur remediation costs or penalties because of the unauthorized disclosure of confidential information belonging to us or to our partners, customers, suppliers or employees.
We may experience difficulties in implementing the final phases of our new enterprise resource planning system. We are in the late stages of a multi-year implementation of a new enterprise resource planning system (“ERP”), which is replacing our existing financial and operating systems. The design and implementation of this new ERP has required an investment of significant personnel and financial resources, including substantial expenditures for outside consultants and software. We may not be able to implement the ERP successfully without experiencing delays, increased costs and other difficulties, including potential design defects, miscalculations, testing requirements, and the diversion of management’s attention from day-to-day business operations. If we are unable to implement the new ERP as planned, the effectiveness of our internal control over financial reporting could be adversely affected, our ability to assess those controls adequately could be delayed, and our business, results of operations, financial condition and cash flows could be negatively impacted.
Risks Associated with Real or Perceived Safety Issues Regarding our Food Products
We sell food products for human consumption, which involves risks such as product contamination or spoilage, product tampering, other adulteration of food products, mislabeling, and misbranding. We can be impacted by both real and unfounded claims regarding the safety of our operations, or concerns regarding mislabeled, adulterated, contaminated or spoiled food products. Any of these circumstances could necessitate a voluntary or mandatory recall due to a substantial product hazard, a need to change a product’s labeling or other consumer safety concerns. A pervasive product recall may result in significant loss due to the costs of a recall, related legal claims, including claims arising from bodily injury or illness caused by our products, the destruction of product inventory, or lost sales due to product unavailability. A highly publicized product recall, whether involving us or any related products made by third parties, also could result in a loss of customers or an unfavorable change in consumer sentiment regarding our products or any category in which we operate. In addition, an allegation of noncompliance with federal or state food laws and regulations could force us to cease production, stop selling our products or create significant adverse publicity that could harm our credibility and decrease market acceptance of our products. Any of these events could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Seasonality and Quarterly Fluctuations
Our sales are affected by the seasonal demand for our products. Demand is greater during the summer months primarily as a result of the warm weather demand for our ICEE and frozen juice treats and desserts products. Because of seasonal fluctuations, there can be no assurance that the results of any particular quarter will be indicative of results for the full year or for future years.
Item 1B. |
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We have no unresolved SEC staff comments to report.
Item 2. | Properties |
The Company’s primary east coast manufacturing facility is located in Pennsauken, New Jersey in a 70,000 square foot building on a two-acre lot. Soft pretzels, churros, and funnel cake are manufactured at this Company-owned facility which also serves as the Company’s corporate headquarters. This facility operates at approximately 65% of capacity. The Company owns a 128,000 square foot building adjacent to this manufacturing facility which contains a large freezer for warehousing and distribution purposes. The warehouse has a utilization rate of 80-90% depending on product demand. The Company leases, through January 2022, 16,000 square feet of office and warehouse space located next to the Pennsauken, New Jersey plant and owns a 43,000 square foot office and warehouse building in the same complex.
The Company owns a 150,000 square foot building on eight acres in Bellmawr, New Jersey. The facility is used by the Company to manufacture some of its products including funnel cake, pretzels and churros. The facility operates at about 75% of capacity.soft pretzels.
The Company’s primary west coast manufacturing facility is located in Vernon (Los Angeles), California. It consists of a 137,000 square foot facility in which soft pretzels, churros and various lines of baked goods are produced and warehoused. Included in the 137,000 square foot facility is a 30,000 square foot freezer used for warehousing and distribution purposes. The facility is leased through November 2030. The Company leases an additional 80,000 square feet of office and warehouse space, adjacent to its manufacturing facility, through November 2030. The manufacturing facility operates at approximately 50% of capacity.
The Company leases a 22,000 square foot soft pretzel manufacturing facility located in Brooklyn, New York. The lease runs through August 2023. The facility operates at about 60% of capacity.
The Company leases through June 2030 a 45,000 square foot churros and funnel cake manufacturing facility located in Colton, California which operates at approximately 50% of capacity.California.
The Company leases an 85,000 square foot bakery manufacturing facility located in Atlanta, Georgia. The lease runs through December 2020. The facility operates at about 55% of capacity.
The Company leases a 129,000 square foot bakery manufacturing facility located in Rock Island, Illinois. The lease runs through December 2034. The facility operates at about 80% of capacity.
The Company owns a 46,000 square foot frozen juice treat and dessert manufacturing facility and a 42,000 square foot dry storage warehouse located on six acres in Scranton, Pennsylvania. The manufacturing facility operates at approximately 70% of capacity.
The Company leases a 29,600 square foot soft pretzel manufacturing facility located in Hatfield, Pennsylvania. The lease runs through June 2032. The facility operates at approximately 50% of capacity.
The Company leases a 48,000 square foot soft pretzel manufacturing facility located in Carrollton, Texas. The lease runs through April 2019. The facility operates at approximately 85% capacity.2026. The Company leases an additional property containing a 6,500 square foot storage freezer across the street from the manufacturing facility, which lease expires May 2021.
The Company leases a 177,500 square foot soft pretzel manufacturing facility located in Alsip, Illinois. The lease runs through March 2030. The facility operates at approximately 30% of capacity.
The Company’s fresh bakery products manufacturing facility and offices are located in Bridgeport, New Jersey in three buildings totaling 133,000 square feet. The buildings are leased through December 2025. The manufacturing facility operates at approximately 65% of capacity.
The Company owns a 165,000 square foot fig and fruit bar manufacturing facility located on 9-1/2 acres in Moscow Mills (St. Louis), Missouri. The facility operates at about 65% of capacity.
The Company leases a building in Pensacola, Florida for the manufacturing, packing and warehousing of dumplings. The building is approximately 14,000 square feet and the lease runs through December 2018. The manufacturing facility operates at approximately 70% of capacity.
The Company owns an 84,000 square foot handheld products manufacturing facility in Holly Ridge, North Carolina which operates at about 60% of capacity.Carolina.
The Company leases a 70,000 square foot handheld products manufacturing facility in Weston, Oregon which operates at about 40% of capacity. The facility is leased through May 13, 2021.
The Company leases a 39,000 square foot frozen juice treat and dessert manufacturing facility in Tampa, Florida which operates at about 40% of capacity. The facility is leased through September 2023.
The Company also leases approximately 160 warehouse and distribution facilities in 44 states, Mexico and Canada.
Item 3. | Legal Proceedings |
The Company has no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Company or any of its subsidiaries is a party or of which any of their property is subject.
Item 4. | Mine Safety Disclosures |
Not Applicable
PART II
Item 5. | Market For Registrant’s Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities |
The Company’s common stock is traded on the NASDAQ Global Select Market under the symbol “JJSF.” The following table sets forth the high and low sale price quotations as reported by NASDAQ and dividend information for the common stock for each quarter of the years ended September 24, 201629, 2018 and September 30, 2017.28, 2019.
Common Stock Market Price | Common Stock Market Price | |||||||||||||||||||||||
Dividend | Dividend | |||||||||||||||||||||||
High | Low | Declared | High | Low | Declared | |||||||||||||||||||
Fiscal 2016 | ||||||||||||||||||||||||
Fiscal 2018 | ||||||||||||||||||||||||
First quarter | $ | 125.62 | $ | 110.76 | $ | 0.3900 | $ | 157.33 | $ | 127.00 | $ | 0.4500 | ||||||||||||
Second quarter | 119.99 | 102.90 | 0.3900 | 153.99 | 128.53 | 0.4500 | ||||||||||||||||||
Third quarter | 113.93 | 97.73 | 0.3900 | 158.41 | 125.98 | 0.4500 | ||||||||||||||||||
Fourth quarter | 125.18 | 111.04 | 0.3900 | 159.05 | 139.90 | 0.4500 | ||||||||||||||||||
Fiscal 2017 | ||||||||||||||||||||||||
Fiscal 2019 | ||||||||||||||||||||||||
First quarter | $ | 135.04 | $ | 102.81 | $ | 0.4200 | $ | 162.80 | $ | 138.65 | $ | 0.5000 | ||||||||||||
Second quarter | 143.21 | 124.57 | 0.4200 | 162.84 | 138.40 | 0.5000 | ||||||||||||||||||
Third quarter | 142.28 | 121.20 | 0.4200 | 167.50 | 150.61 | 0.5000 | ||||||||||||||||||
Fourth quarter | 138.38 | 124.10 | 0.4200 | 196.84 | 159.63 | 0.5000 |
As of September 30, 2017,28, 2019, we had approximately 15,00023,000 beneficial shareholders.
In our fiscal year ended September 26, 2015, we purchased and retired 72,698 shares of our common stock at a cost of $8,011,118.
In our fiscal year ended September 24, 2016, we purchased and retired 141,700 shares of our common stock at a cost of $15,265,019.
In our fiscal year ended September 30, 2017, we purchased and retired 142,665 shares of our common stock at a cost of $18,228,763.
In our second quarter,fiscal year ended September 29, 2018, we purchased and retired 12,92620,604 shares of our common stock at a cost of $1,682,342. In our third quarter, we purchased and retired 13,004$2,794,027.
We did not purchase any shares at a cost of $1,691,357. In our fourth quarter, we purchased and retired 116,735 shares at a cost of $14,855,064. The following sets forth the amount of our common stock purchased by the Company during the fourth quarter ofin our fiscal 2017:year ended September 28, 2019.
Total Number of Shares | Maximum Number of | |||||||||||||||||
Purchased as part of | Shares that may yet be | |||||||||||||||||
Total Number of | Average Price | Publicly announced | Purchased under the | |||||||||||||||
Period: | Shares Purchased | Paid per Share | Plans or Programs | Plan or Programs | ||||||||||||||
June 25, 2017-July 22, 2017 | - | - | - | - | ||||||||||||||
July 23, 2017-August 19, 2017 | 48,490 | $ | 128.31 | 48,490 | 473,355 | |||||||||||||
August 20, 2017-September 30, 2017 | 68,245 | $ | 126.51 | 68,245 | 405,110 | |||||||||||||
Total | 116,735 | $ | 127.26 | 116,735 | 405,110 |
A plan to purchase 500,000 shares was announced on November 8, 2012 .2012. 500,000 shares were purchased under this plan with the last purchase in August 2017.
A plan to purchase 500,000 shares was announced on August 4, 2017 with no expiration date. 384,506 shares remain to be purchased under this plan.
For information on the Company’sCompany’s Equity Compensation Plans, please see Item 12 herein.
Stock Performance Graph
Item 6. | Selected Financial Data |
The selected financial data for the last five years was derived from our audited consolidated financial statements. The following selected financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes thereto, especially as the information pertains to fiscal 2015, 20162017, 2018 and 2017.2019.
Fiscal year ended in September | Fiscal year ended in September (In thousands except per share data) | |||||||||||||||||||||||||||||||||||||||
(In thousands except per share data) | ||||||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | 2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||||||||||||||||||||||
Net Sales | $ | 1,084,224 | $ | 992,781 | $ | 976,256 | $ | 919,451 | $ | 867,683 | $ | 1,186,487 | $ | 1,138,265 | $ | 1,084,224 | $ | 992,781 | $ | 976,256 | ||||||||||||||||||||
Net Earnings | $ | 79,174 | $ | 75,975 | $ | 70,183 | $ | 71,814 | $ | 64,381 | $ | 94,819 | $ | 103,596 | $ | 79,174 | $ | 75,975 | $ | 70,183 | ||||||||||||||||||||
Total Assets | $ | 867,228 | $ | 790,487 | $ | 739,669 | $ | 704,773 | $ | 645,661 | $ | 1,019,339 | $ | 932,013 | $ | 867,228 | $ | 790,487 | $ | 739,669 | ||||||||||||||||||||
Long-Term Debt | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||||||
Capital Lease Obligations | $ | 1,244 | $ | 1,600 | $ | 1,469 | $ | 520 | $ | 347 | $ | 1,057 | $ | 1,077 | $ | 1,244 | $ | 1,600 | $ | 1,469 | ||||||||||||||||||||
Stockholders' Equity | $ | 682,322 | $ | 637,974 | $ | 599,919 | $ | 562,518 | $ | 516,565 | $ | 833,751 | $ | 759,091 | $ | 682,322 | $ | 637,974 | $ | 599,919 | ||||||||||||||||||||
Common Share Data | ||||||||||||||||||||||||||||||||||||||||
Earnings Per Diluted Share | $ | 4.21 | $ | 4.05 | $ | 3.73 | $ | 3.82 | $ | 3.41 | $ | 5.00 | $ | 5.51 | $ | 4.21 | $ | 4.05 | $ | 3.73 | ||||||||||||||||||||
Earnings Per Basic Share | $ | 4.23 | $ | 4.07 | $ | 3.76 | $ | 3.85 | $ | 3.43 | $ | 5.04 | $ | 5.54 | $ | 4.23 | $ | 4.07 | $ | 3.76 | ||||||||||||||||||||
Common Shares Outstanding At Year End | 18,663 | 18,668 | 18,676 | 18,663 | 18,677 | 18,895 | 18,754 | 18,663 | 18,668 | 18,676 | ||||||||||||||||||||||||||||||
Cash Dividends Declared Per Common Share | $ | 1.68 | $ | 1.56 | $ | 1.44 | $ | 1.28 | $ | 0.64 | $ | 2.00 | $ | 1.80 | $ | 1.68 | $ | 1.56 | $ | 1.44 |
Item 7. | Management’s Discussion And Analysis Of Financial Condition And Results Of Operations |
In addition to historical information, this document and analysis contains forward-looking statements. The forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. Important factors that might cause such a difference include, but are not limited to, those discussed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after the date hereof.
Critical Accounting Policies, Judgments and Estimates
We prepare our financial statements in conformity with accounting principles generally accepted in the United States of America. The preparation of such financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of those financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The Company discloses its significant accounting policies in the accompanying notes to its audited consolidated financial statements.
Judgments and estimates of uncertainties are required in applying the Company’s accounting policies in certain areas. Following are some of the areas requiring significant judgments and estimates: revenue recognition, accounts receivable, cash flow and valuation assumptions in performing asset impairment tests of long-lived and intangible assets, estimates of the value and useful lives of intangible assets, insurance reserves, inventories and income taxes.
There are numerous critical assumptions that may influence accounting estimates in these and other areas. We base our critical assumptions on historical experience, third-party data and various other estimates we believe to be reasonable. A description of the aforementioned policies follows:
Revenue Recognition -We adopted the new revenue recognition guidance on the first day of our fiscal 2019 year using a modified retrospective approach; however, we did not record a cumulative-effect adjustment from initially applying the standard as the adoption did not have a material impact on our financial position or results of operations. We completed a review of customer contracts and evaluated the impact of the new standard on certain common practices currently employed by us. We also finalized our assessment of the impact on our accounting policies, processes, system requirements, internal controls and disclosures.
When Performance Obligations Are Satisfied
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account for revenue recognition. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.
The singular performance obligation of our customer contracts for product and machine sales is determined by each individual purchase order and the respective products ordered, with revenue being recognized at a point-in-time when the obligation under the terms of the agreement is satisfied and product control is transferred to our customer. Specifically, control transfers to our customers when the product is delivered to, installed or picked up by our customers based upon applicable shipping terms, as our customers can direct the use and obtain substantially all of the remaining benefits from the product at this point in time. The performance obligations in our customer contracts for product are generally satisfied within 30 days.
The singular performance obligation of our customer contracts for time and material repair and maintenance equipment service is the performance of the repair and maintenance with revenue being recognized at a point-in-time when the repair and maintenance is completed.
The singular performance obligation of our customer repair and maintenance equipment service contracts is the performance of the repair and maintenance with revenue being recognized over the time the service is expected to be performed. Our customers are billed for service contracts in advance of performance and therefore we have contract liability on our balance sheet.
Significant Payment Terms
In general, within our customer contracts, the purchase order identifies the product, quantity, price, pick-up allowances, payment terms and final delivery terms. Although some payment terms may be more extended, presently the majority of our payment terms are 30 days. As a result, we have used the available practical expedient and, consequently, do not adjust our revenues for the effects of a significant financing component.
Shipping
All amounts billed to customers related to shipping and handling are classified as revenues; therefore, we recognize revenue from ourfor shipping and handling fees at the time the products are shipped or when services are performed. The cost of shipping products to the customer is recognized at the time the products are shipped to the customer and our policy is to classify them as Distribution expenses.
Variable Consideration
In addition to fixed contract consideration, our contracts include some form of variable consideration, including sales discounts, trade promotions and certain other sales and consumer incentives, including rebates and coupon redemptions. In general, variable consideration is treated as a reduction in revenue when the related revenue is recognized. Depending on the specific type of variable consideration, we use the most likely amount method to determine the variable consideration. We believe there will be no significant changes to our estimates of variable consideration when any related uncertainties are resolved with our customers. RepairWe review and maintenance equipment service revenue is recorded when it is performed ifupdate our estimates and related accruals of variable consideration each period based on historical experience.
Warranties & Returns
We provide all customers with a standard or assurance type warranty. Either stated or implied, we provide assurance the customer termsrelated products will comply with all agreed-upon specifications and other warranties provided under the law. No services beyond an assurance warranty are that the customer isprovided to be charged onour customers.
We do not grant a time and material basisgeneral right of return. However, customers may return defective or recorded onnon-conforming products. Customer remedies may include either a straight-line basis over the termcash refund or an exchange 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.product. We record offsets to revenue for allowances, end-user pricing adjustments, trade spending, coupon redemption costs and returned product. Customers generally do not have theestimate a right toof return product unless it is damaged or defective. Off-invoice allowances are deducted directly from the amount invoiced to our customer whenand related refund liability as returns of our products are shipped to the customer. Offsets to revenuerare.
Contract Balances
Our customers are billed for allowances, end-user pricing adjustmentsservice contracts in advance of performance and trade spending are recorded primarily as a reduction of accounts receivable basedtherefore we have contract liability on our estimatesbalance sheet as follows:
Fiscal Year Ended | ||||||||
September 28, | September 29, | |||||||
2019 | 2018 | |||||||
(in thousands) | ||||||||
Beginning Balance | $ | 1,865 | $ | 1,956 | ||||
Additions to contract liability | 6,308 | 6,887 | ||||||
Amounts recognized as revenue | (6,839 | ) | (6,978 | ) | ||||
Ending Balance | $ | 1,334 | $ | 1,865 |
Disaggregation of liability which are based on customer programs and historical experience. These offsets to revenue are estimated primarily onRevenue
See Note O of the quantity of product purchased over specific time periods. For our Retail Supermarket and Frozen Beverages segments, we accrue for the liability based on products sold multiplied by per product offsets. Offsets to revenue for our Food Service segment are calculated in a similar manner for offsets owedNotes to our direct customers; however, because shipments to end-users are unknown to us until reportedConsolidated Financial Statements for disaggregation of our net sales by our direct customers or by the end-users, there is a greater degreeclass of uncertainty as to the accuracysimilar product and type of the amounts accrued for end-user offsets. Additional uncertainty may occur as customers take deductions when they make payments to us. This creates complexities because our customers do not always provide reasons for the deductions taken. Additionally, customers may take deductions to which they are not entitled and the length of time customers take deductions to which they are entitled can vary from two weeks to well over a year. Because of the aforementioned uncertainties, the process to determine these estimates requires judgment. We feel that due to constant monitoring of the process, including but not limited to comparing actual results to estimates made on a monthly basis, these estimates are reasonable in all material respects. Our recorded liability for allowances, end-user pricing adjustments and trade spending was approximately $13.0 million at September 30, 2017 and $14.3 million at September 24, 2016.customer.
Allowance for Doubtful Receivables
We provide an allowance for doubtful receivables after taking into consideration historical experience and other factors. The allowance for doubtful receivables was $665,000 and $400,000 at June 29, 2019 and September 29, 2018, respectively.
Accounts Receivable - We record accounts receivable at the time revenue is recognized. Bad debt expense is recorded in marketing and administrative expenses. The amount of the allowance for doubtful accounts is based on our estimate of the accounts receivable amount that is uncollectable. It is comprised of a general reserve based on historical experience and amounts for specific customers’ accounts receivable balances that we believe are at risk due to our knowledge of facts regarding the customer(s). We continually monitor our estimate of the allowance for doubtful accounts and adjust it monthly. We usually have approximately 15 customers with accounts receivable balances of between $1 million to $10 million. Failure of these customers, and others with lesser balances, to pay us the amounts owed, could have a material impact on our consolidated financial statements.
Accounts receivable due from any of our customers is subject to risk. Our total bad debt expense was $122,000, $525,000$389,000, $259,000 and $310,000$122,000 for the fiscal years 2017, 20162019, 2018 and 2015,2017, respectively. At September 30, 201728, 2019 and September 24, 2016,29, 2018, our accounts receivables were $124,553,000$140,938,000 and $98,325,000$132,342,000 net of an allowance for doubtful accounts of $359,000$572,000 and $571,000.$400,000.
Asset Impairment – We have three reporting units with goodwill totaling $102,511,000 as of September 30, 2017.28, 2019. Goodwill is evaluated annually by the Company for impairment. We perform impairment tests at year end for our reporting units, which is also the operating segment level, with recorded goodwill utilizing primarily the discounted cash flow method. This methodology used to estimate the fair value of the total Company and its reporting units requires inputs and assumptions (i.e. revenue growth, operating profit margins, capital spending requirements and discount rates) that reflect current market conditions. The estimated fair value of each reporting unit is compared to the carrying value of the reporting unit. If the carrying value of the reporting unit exceeds its fair value, the goodwill of the reporting unit is potentially impaired, and the Company then determines the implied fair value of goodwill, which is compared to the carrying value of goodwill to determine if impairment exists. Our tests at September 30, 201728, 2019 show that the fair value of each of our reporting units with goodwill exceeded its carrying value. Therefore no further analysis was required. The inputs and assumptions used involve considerable management judgment and are based upon assumptions about expected future operating performance. Assumptions used in these forecasts are consistent with internal planning. The actual performance of the reporting units could differ from management’s estimates due to changes in business conditions, operating performance, economic conditions, competition and consumer preferences.
Licenses and rights, customer relationships and non-competenon- compete agreements are being amortized by the straight-line method over periods ranging from 32 to 20 years and amortization expense is reflected throughout operating expenses. Long-lived assets, including fixed assets and amortizing intangibles, are reviewed for impairment as events or changes in circumstances occur indicating that the carrying amount of the asset may not be recoverable. Indefinite lived intangibles are reviewed annually for impairment. Cash flow and sales analyses are used to assess impairment. The estimates of future cash flows and sales involve considerable management judgment and are based upon assumptions about expected future operating performance. Assumptions used in these forecasts are consistent with internal planning. The actual cash flows and sales could differ from management’s estimates due to changes in business conditions, operating performance, economic conditions, competition and consumer preferences.
Useful Lives of Intangible Assets - Most of our trade names which have carrying value have been assigned an indefinite life and are not amortized because we plan to receive the benefit from them indefinitely. If we decide to curtail or eliminate the use of any of the trade names or if sales that are generated from any particular trade name do not support the carrying value of the trade name, then we would record impairment or assign an estimated useful life and amortize over the remaining useful life. Rights such as prepaid licenses and non-compete agreements are amortized over contractual periods. The useful lives of customer relationships are based on the discounted cash flows expected to be received from sales to the customers adjusted for an attrition rate. The loss of a major customer or declining sales in general could create an impairment charge.
Insurance Reserves - We have a self-insured medical plan which covers approximately 1,6001,700 of our employees. We record a liability for incurred but not yet reported or paid claims based on our historical experience of claims payments and a calculated lag time period. We maintain a spreadsheet that includes claims payments made each month according to the date the claim was incurred. This enables us to have an historical record of claims incurred but not yet paid at any point in the past. We then compare our accrued liability to the more recent claims incurred but not yet paid amounts and adjust our recorded liability up or down accordingly. Our recorded liability at September 30, 201728, 2019 and September 24, 201629, 2018 was $2,382,000$1,392,000 and $1,719,000,$2,058,000, respectively. Considering that we have stop loss coverage of $200,000 for each individual plan subscriber, the general consistency of claims payments and the short time lag, we believe that there is not a material exposure for this liability. Because of the foregoing, we do not engage a third party actuary to assist in this analysis.
We self-insure, up to loss limits, worker’s compensation and automobile liability claims. Accruals for claims under our self-insurance program are recorded on a claims-incurred basis. Under this program, the estimated liability for claims incurred but unpaid in fiscal years 20172019 and 20162018 was $2,900,000$3,300,000 and $1,900,000$4,100,000 respectively. Our total recorded liability for all years’ claims incurred but not yet paid was $8,100,000$8,700,000 and $8,200,000$9,200,000 at September 30, 201728, 2019 and September 24, 2016,29, 2018, respectively. We estimate the liability based on total incurred claims and paid claims adjusting for loss development factors which account for the development of open claims over time. We estimate the amounts we expect to pay for some insurance years by multiplying incurred losses by a loss development factor which is based on insurance industry averages and the age of the incurred claims; our estimated liability is then the difference between the amounts we expect to pay and the amounts we have already paid for those years. Loss development factors that we use range from 1.0 to 2.0. However, for some years, the estimated liability is the difference between the amounts we have already paid for that year and the maximum we could pay under the program in effect for that particular year because the calculated amount we expect to pay is higher than the maximum. For other years, where there are few claims open, the estimated liability we record is the amount the insurance company has reserved for those claims. We evaluate our estimated liability on a continuing basis and adjust it accordingly. Due to the multi-year length of these insurance programs, there is exposure to claims coming in lower or higher than anticipated; however, due to constant monitoring and stop loss coverage of $350,000 on individual claims, we believe our exposure is not material. Because of the foregoing, we do not engage a third party actuary to assist in this analysis. In connection with these self-insurance agreements, we customarily enter into letters of credit arrangements with our insurers. At both September 30, 201728, 2019 and September 24, 2016,29, 2018, we had outstanding letters of credit totaling $8,675,000 and $8,675,000, respectively.$9,275,000.
Inventories - Inventories are valued at the lower of cost (determined by the first-in, first-out method) or market. We recognize abnormal amounts of idle facilities, freight, handling costs, and spoilage as charges of the current period. Additionally, we allocate fixed production overhead to inventories based on the normal capacity of our production facilities. We calculate 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. This requires us 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 is not 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.
Income Taxes - We account for our income taxes under the liability method. Under the liability method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates that will be in effect when these differences reverse. Deferred tax expense is the result of changes in deferred tax assets and liabilities.
Refer to Note A to the accompanying consolidated financial statements for additional information on our accounting policies.
RESULTS OF OPERATIONS:
Fiscal 2017 (532019 (52 weeks) Compared to Fiscal Year 2016 (522018 (52 weeks)
Net sales increased $91,443,000,$48,222,000, or 9%4%, to $1,084,224,000$1,186,487,000 in fiscal 20172019 from $992,781,000$1,138,265,000 in fiscal 2016. Excluding sales from the extra week in 2017, sales increased approximately 7% from 2016 to 2017.
Excluding sales from Hill & Valley, Inc., acquired in January 2017, an ICEE distributor located in the Southeast acquired in June 2017 and Labriola Bakery which was acquired in August 2017 and the extra week in 2017, sales increased approximately 3% for the year.2018.
We have three reportable segments, as disclosed in the accompanying notes to the consolidated financial statements: Food Service, Retail Supermarkets and Frozen Beverages.
The Chief Operating Decision Maker for Food Service and Retail Supermarkets 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 resourcesresources to each individual segment. Sales and operating income are the key variables monitored by the Chief Operating Decision Makers and management when determining each segment’s and the company’sCompany’s financial condition and operating performance. In addition, the Chief Operating Decision Makers review and evaluate depreciation, capital spending and assets of each segment on a quarterly basis to monitor cash flow and asset needs of each segment.
FOOD SERVICE
Sales to food service customers increased $80,265,000$15,659,000, or 13%,2 percent, to $701,794,000$761,603,000 in fiscal 2017. Excluding sales from the extra week in 2017, sales increased approximately 10% from 2016 to 2017. Excluding Hill & Valley and Labriola sales and the extra week in 2017, sales increased approximately 5% for the year.2019. Soft pretzel sales to the food service market increased 6%about 1/3 of 1 percent to $180,138,000$209,227,000 for the year with stronghigher sales to convenience store chains offset by lower sales to restaurant chains and with sales increases and decreases throughout our customer base. Our new line of BRAUHAUS pretzels contributed to the increased sales. Excluding Labriola sales, soft pretzel sales increased 5%. Frozen juice bar and ices sales decreased $2,329,000,increased $1,308,000, or 4%3%, to $49,469,000$43,672,000 for the year due primarily to lowerhigher sales to warehouse club stores. Churro sales to food service customers were up 10%7% to $62,809,000$65,976,000 for the year with increasedsales increases and decreases across our customer base but with particularly strong sales to restaurant chains and warehouse club stores. Sales of bakery products increased $56,839,000,$13,245,000, or 19%4%, to $384,636,000 for the year. Excluding Hill & Valley sales, bakery sales increased 7% for the year. Although sales increases and decreases were spread across our customer base,year with increased sales to two customers accountedone customer accounting for all of the entire sales increase, exclusive of Hill & Valley.increase. Handheld sales to food service customers were up 35%down 19% to $36,913,000$31,685,000 in 20172019 with sales increasesdecreases to fourthree customers accounting for about 75%all of the increase.decrease. Sales of funnel cake increased $780,000,$3,223,000, or 4%15% to $19,959,000$24,793,000 due primarily to increased sales to school fooda quick service and despiterestaurant under a sharp declinelimited time offer in sales to one restaurant chain.our second quarter. Overall food service sales to restaurant chains and school food service were strongdown about 2% for the year. Sales of new products in the first twelve months since their introduction were approximately $43$13.5 million for the year. VolumePrice increases accounted for approximately $15 million of sales for the year and net volume including new product sales and sales from acquired companies, accounted for virtually all of the food service sales increases. Price increases had a marginal impact on sales for the year.were essentially flat. Operating income in our Food Service segment increased from $76,539,000$74,056,000 in 20162018 to $81,208,000$78,130,000 in 2017 with primarily all2019 resulting from benefits of the increase coming inimproved operations at several of our fourth quarter because of strong sales of all product categories compared to last year’s fourth quartermanufacturing facilities and about $551,000 of operating income from Hill & Valley. Additionally, last year’s fourth quarter was impacted by roughly $1.5 million of costs related to certain bakery products that were withdrawn from the market due to quality issues. Operating income for the 2017 year benefitted from a $1.8 million gain on insurance recovery recorded in our third quarter related to last year’s product quality issues.increased pricing.
RETAIL SUPERMARKETS
Sales of products to retail supermarkets increased $1,658,000decreased $1,663,000 or 1% to $119,247,000$119,276,000 in fiscal year 2017. Excluding sales from the extra week in 2017, sales decreased approximately 1/2 of 1 % from 2016 to 2017.2019. Soft pretzel sales to retail supermarkets were $35,081,000$36,264,000 compared to $33,279,000$36,438,000 in 2016, an increase of 5%. About 3/4 of the2018. Strong pretzel sales increase wasincreases from sales of AUNTIE ANNE’S products under a license agreement entered into this year.were offset by lower sales of our SUPER PRETZEL products. Sales of frozen juices and ices increased $2,401,000decreased $684,000 or 3%1% to $71,325,000 primarily because of a reduction in trade spending which was higher than usual last year$73,751,000 as we lost some volume and placements due to introduce WHOLE FRUIT Organic juice tubes and new PHILLY SWIRL products and increased sales of the WHOLE FRUIT product line in general.price increases. Coupon redemption costs, a reduction of sales, increased 11%decreased 19% to $4,898,000$3,596,000 for the year. Handheld sales to retail supermarket customers decreased 3%12% to $14,892,000$10,902,000 for the year as sales of this product line in retail supermarkets continues its long-term decline. Sales of OREO churros, introduced last year, were approximately $2.5 million for the year compared to $4.0 million last year, with all of the decline in the fourth quarter.
Sales of new products in the first twelve months since their introduction were approximately $2.8$1 million in fiscal year 2017.2019. Price increases were negligible in 2017.provided about $4 million of sales for the year and net volume decreased about $5.5 million for the year. Operating income in our Retail Supermarkets segment increased from $9,618,000$8,304,000 to $10,627,000$8,876,000 for the year. The primary contribution to the higher operating income this year primarily because of approximately $2.5 million of higher trade spending in 2016 for the introduction of WHOLE FRUIT Organic juice tubes, OREO churros, PILLSBURY mini dessert pies and several PHILLY SWIRL products.was increased pricing.
FROZEN BEVERAGES
Frozen beverage and related product sales increased 4%13% to $263,183,000$305,608,000 in fiscal 2017. Excluding sales from the extra week in 2017, sales increased approximately 2% from 2016 to 2017. Excluding the acquired ICEE distributor and the extra week in 2017, sales increased approximately 1% for the year.2019. Beverage sales alone increased 7% or $10,125,000$10,883,000 for the year with increases and decreases throughout our customer base. About one third of the beverage sales increase was from increased flow through sales to one distributor which did not benefit operating income. Gallon sales were up 6%3% in our base ICEE business, with sales increases spread throughout our customer base. Service revenue increased 5%8% to $74,594,000$85,103,000 for the year with sales increases and decreases spread throughout our customer base. SalesMachines revenue, primarily sales of beverage machines, which tendincreased from $28,652,000 in 2018 to fluctuate from year$45,811,000 in 2019 with sales to year while following no specific trend, decreased from $31,155,000 in 2016 to $27,073,000 in 2017.two customers accounting for most of the increase. The estimated number of Company owned frozen beverage dispensers was 25,00026,000 and 23,00025,000 at September 30, 201728, 2019 and September 24, 2016,29, 2018, respectively. Operating income in our Frozen Beverage segment decreasedincreased from $26,653,000$28,415,000 in 20162018 to $26,272,000$29,950,000 in 2017 due primarily to lower machine sales and2019 as a result of higher payroll and payroll related costs.sales.
CONSOLIDATED
Other than as commented upon above by segment, there are no material specific reasons for the reported sales increases or decreases. Sales levels can be impacted by the appeal of our products to our customers and consumers and their changing tastes, competitive and pricing pressures, sales execution, marketing programs, seasonal weather, customer stability and general economic conditions.
Gross profit as a percentage of sales decreased to 30.53%was essentially unchanged at 29.53% in 2017 from 30.67%2019 and 29.54% in 2016. Without2018 as the benefits of improved operations at several of our manufacturing facilities and increased pricing were offset by increases in lower gross profit percentagemargin sales of the Hill & Valley business, gross profit percentage would have been 30.82% in 2017. Gross profit percentage compared to the previous year benefitted from higher volumes throughout our business and lower trade spendingmachines in our retail supermarket business but was negatively impacted by higher payrollfrozen beverages segment and payroll related costs throughout our business. Additionally this year’s grossincreases in lower margin percentage benefitted from the $1.8 million gain on insurance recovery in contrast to the additional $1.5 millionsales of related costs in last yearbakery products in our food service segment.
Total operating expenses increased $21,259,000$7,934,000 to $212,916,000$233,445,000 in fiscal 20172019 and as a percentage of sales increaseddecreased to 19.64%19.68% of sales from 19.31%19.81% in 2016.2018. Marketing expenses were 8.71% and 8.66decreased to 8.13% this year from 8.38% of sales in 2017 and 2016, respectively.2018 because of modest spending increases in all of our businesses. Distribution expenses as a percent of sales increaseddecreased to 7.55%8.00% from 7.36%8.11% in 2017 due in part to higher shipping costs.2018 because freight rates have dropped from last year. Administrative expenses were 3.40%3.43% and 3.25%3.32% of sales in 20172019 and 2016, respectively as we incur costs to upgrade our information systems.2018, respectively.
Operating income increased $5,297,000$6,181,000 or 5%6% to $118,107,000$116,956,000 in fiscal year 20172019 as a result of the aforementioned items.
Our investments generated before tax income of $5.3$7.7 million this year, up from $4.1$6.3 million last year. Last year’syear due to increases in the amount of investments and higher interest rates.
Other income was reduced by realizedin 2019 includes a $2.0 million payment received from a customer due to cancellation of production under a co-manufacturing agreement.
Other income in 2018 includes $520,000 gain on a sale of property and $869,000 reimbursement of business interruption losses of $661,000 on sales of investments.due to the MARY B’s biscuits recall in January 2018.
Other expenses this yearin 2017 include $1,070,000 of expenses incurred to acquire Hill & Valley, the ICEE distributor and Labriola Bakery.
The effective income tax rate increased to 35.2% from 35.0% last year. We expect the effective income tax rate for 2018 to be approximately 36%.
Net earnings increased $3,199,000for the year ended September 29, 2018 benefited from a $20.7 million gain, or 4%$1.11 per diluted share, on the remeasurement of deferred tax liabilities and a $8.8 million, or $0.47 per diluted share, reduction in income taxes related primarily to the lower corporate tax rate enacted under the Tax Cuts and Jobs Act in December 2017 which was partially offset by a $1.2 million, or $.06 per diluted share, provision for the one time repatriation tax, both of which resulted from the Tax Cuts and Jobs Act enacted in December 2017. Net earnings for the year were also impacted by a $1.4 million, or $.07 per diluted share, expense on the remeasurement of deferred tax liabilities due to changes in New Jersey tax regulations effective July 2018. Excluding the deferred tax gain, the deferred tax expense and the one-time repatriation tax, our effective tax rate was 27.7% in the year ended September 29, 2018. Net earnings this year benefitted by a reduction of approximately $900,000 in tax as the provision for the one-time repatriation tax was reduced as the amount recorded last year was an estimate. Excluding the reduction in the provision for the one-time repatriation tax, our effective tax rate was 25.8% for this year.
Net earnings decreased $8,777,000 or 8%, in the 53 weeks fiscal 20172019 to $79,174,000,$94,819,000, or $4.21$5.00 per diluted share, from $75,975,000,$103,596,000, or $4.05$5.51 per diluted share, in the 52 weeks fiscal 20162018 as a result of the aforementioned items.
There are many factors which can impact our net earnings from year to year and in the long run, among which are the supply and cost of raw materials and labor, insurance costs, factors impacting sales as noted above, the continuing consolidation of our customers, our ability to manage our manufacturing, marketing and distribution activities, our ability to make and integrate acquisitions and changes in tax laws and interest rates.
RESULTS OF OPERATIONS:
Fiscal 20162018 (52 weeks) Compared to Fiscal Year 2015 (522017 (53 weeks)
Net sales increased $16,525,000,$54,041,000, or 2%5%, to $992,781,000$1,138,265,000 in fiscal 20162018 from $976,256,000$1,084,224,000 in fiscal 2015.2017. Excluding sales from the extra week in 2017, sales increased approximately 7% from 2017 to 2018.
Excluding sales from Hill & Valley, Inc., acquired in January 2017, an ICEE distributor located in the Southeast acquired in June 2017 and Labriola Bakery which was acquired in August 2017 and the extra week in 2017, sales increased approximately 4% for the year.
We have three reportable segments, as disclosed in the accompanying notes to the consolidated financial statements: Food Service, Retail Supermarkets and Frozen Beverages.
The Chief Operating Decision Maker for Food Service and Retail Supermarkets 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. Sales and operating income are the key variables monitored by the Chief Operating Decision Makers and management when determining each segment’s and the company’sCompany’s financial condition and operating performance. In addition, the Chief Operating Decision Makers review and evaluate depreciation, capital spending and assets of each segment on a quarterly basis to monitor cash flow and asset needs of each segment.
FOOD SERVICE
Sales to food service customers increased $4,894,000$44,150,000 or less than 1%6%, to $621,529,000$745,944,000 in fiscal 2016.2018. Excluding the extra week in 2017, sales increased approximately 9% from 2017 to 2018. Excluding Hill & Valley and Labriola sales and the extra week in 2017, sales increased approximately 4% for the year. Soft pretzel sales to the food service market increased 1%16% to $170,155,000$208,544,000 for the year with strong sales to restaurant chains and movie theatres and with sales increases and decreases throughout our customer base. SoftOur new line of BRAUHAUS pretzels contributed to the increased sales. Excluding Labriola sales, soft pretzel sales to restaurant chains were about the same this year and last year.increased 10%. Frozen juice bar and ices sales decreased $2,656,000,$7,105,000, or 5%14%, to $51,798,000$42,364,000 for the year due primarily to lower sales to two customers.warehouse club stores because of a loss of a promotion and because of reduced distribution. Churro sales to food service customers were up 1%down 2% to $57,318,000$61,726,000 for the year with sales increases and decreases throughoutacross our customer base.base but with particularly low sales to one warehouse club store which last year had sales of a new product since discontinued. Sales of bakery products decreased $6,617,000,increased $20,034,000, or 2%6%, for the year. Excluding Hill & Valley and Labriola sales, bakery sales were down about 1/4 of 1% for the year with sales to oneincreases and decreases spread across our customer down $7.0 million as the customer added a secondary supplier.base. Handheld sales to food service customers were up 26%5% to $27,427,000$38,928,000 in 20162018 with sales increases to one customertwo customers accounting for about 80%all of the increase. Sales of funnel cake increased $7,000,000,$1,611,000, or 57%8% to $19,179,000$21,570,000 due primarily to increased sales to school food service. Overall food service and $4.0 million of sales to a new restaurant chain customer.chains were strong for the year. Sales of new products in the first twelve months since their introduction were approximately $32$20 million for the year. Price increases accounted for approximately $5$8.5 million of sales for the year and net volume increases including new product sales as defined above, was essentially unchanged from lastand sales of the acquired businesses accounted for approximately $36 million of sales for the year. Operating income in our Food Service segment increaseddecreased from $75,286,000$81,208,000 in 20152017 to $76,539,000$74,056,000 in 2016.2018. Operating income this year was impacted by approximately $5.3 million of higher distribution expenses primarily due to higher fuel costs and the January 2018 implementation of the electronic logging device mandate. Additionally, lower sales of our MARY B’s biscuits and related costs due to our recall in early January impacted our operating income by approximately $1.8 million for the year benefitted from lower marketing expenses, lower ingredientyear. Operating income was also impacted by generally higher costs significantly increased volume of our handheldsfor payroll and funnel cake products, pricing and more favorableinsurance, added personnel in the selling function, product mix changes and was hurt by higher group health insurance costs andsignificantly lower volume concentrated in specific facilities and higher cost of ingredients. Operating income in the first quarter was impacted by inefficiencies at our frozen juices and ices and bakery products. However, operating incomeLabriola production facility which was acquired in the fourth quarter decreased from $23,665,0002017 (compounded by the integration of products previously manufactured at other facilities) and shutdown costs of our Chambersburg facility. Operating income was also impacted by idle overhead during an upgrade of one of our production facilities. Hill & Valley contributed improved operating income of $1.7 million compared to last year. Last year’s operating income included a $1.8 million gain on an insurance recovery related to product quality issues in 2015 to $17,498,000 inour 2016 primarily because of a 2% decline in sales and higher manufacturing expenses. We anticipate that these issues will continue to affect us into the first quarter of fiscal year 2017. Additionally, approximately 1/4which was recorded as a reduction of the decreasecost of $6,167,000 in operating income resulted from costs related to certain bakery products that were withdrawn from the market due to quality issues.goods sold.
RETAIL SUPERMARKETS
Sales of products to retail supermarkets decreased $5,788,000increased $1,692,000 or 5%1% to $117,589,000$120,939,000 in fiscal year 2016.2018. Excluding sales from the extra week in 2017, sales increased approximately 3% from 2017 to 2018. Soft pretzel sales to retail supermarkets were $33,279,000$36,438,000 compared to $35,727,000$35,081,000 in 2015, a decrease2017, an increase of 7%4%. About 1/2All of the pretzel sales declineincrease was due to the discontinuancefrom sales of SUPERPRETZEL BAVARIAN Soft Pretzel bread which was introducedAUNTIE ANNE’S products, under a license agreement entered into midway in 2015.our 2017 year. Sales of frozen juices and ices decreased $3,250,000increased $3,110,000 or 5%4% to $68,924,000. Increased trade spending to introduce WHOLE FRUIT Organic juice tubes and new PHILLY SWIRL products and general declines in sales of our existing PHILLY SWIRL products accounted for all of the sales decline in frozen juices and ices. PHILLY SWIRL sales were down$74,435,000 primarily because of lower sales toof SOUR PATCH KIDS frozen novelties under a customer in Canada due to the stronger US dollar, lower sales to one warehouse club store which carried fewer SKUS this year and decreased sales to one retail supermarket customer of a product that is being discontinued. Although sales were down for the year, PHILLY SWIRL sales were marginally higher in the fourth quarter.new license agreement. Coupon redemption costs, a reduction of sales, which were higher in the first six months a year ago supporting the introduction of the SUPERPRETZEL BAVARIAN Soft Pretzel Bread, decreased 6%9% to $4,430,000$4,439,000 for the year. Handheld sales to retail supermarket customers decreased 19%17% to $15,347,000 for the year. Roughly 37% of the handhelds sales decline in the year resulted from increased trade spending to introduce PILLSBURY mini dessert pies. The balance of the sales decline was spread over our customer base. Sales of OREO churros, introduced this year, were approximately $4.0 million$12,419,060 for the year with about ½as sales of the sales comingthis product line in the fourth quarter.retail supermarkets continues its long-term decline.
Sales of new products in the first twelve months since their introduction were approximately $8$6 million in fiscal year 2016.2018. Price increases accounted for approximately $2 million of sales for the year but higher trade spending of $6 million and volume decreases of $2 million resultedwere negligible in an overall sales decline of $5.7 million.2018. Operating income in our Retail Supermarkets segment decreased from $11,020,000$10,627,000 to $9,618,000$8,304,000 for the year. The primary contributions to the lower operating income this year primarily because of approximately $2 million of increasedwere increases in trade spending, related todistribution costs and product costs which offset a major contribution from the introductionsales of WHOLE FRUIT Organic juice tubes, OREO churros, PILLSBURY mini dessert pies and other new products and lower soft pretzels andSOUR PATCH KIDS frozen juices and ices sales volume. However, operating income in the fourth quarter increased from $1,413,000 in 2015 to $1,793,000 in 2016 primarily because of a 4% increase in overall sales.novelties.
FROZEN BEVERAGES
Frozen beverage and related product sales increased 7%3% to $253,663,000$271,382,000 in fiscal 2016.2018. Excluding sales from the extra week in 2017, sales increased approximately 5% from 2017 to 2018. Excluding the acquired ICEE distributor and the extra week in 2017, sales increased approximately 4% for the year. Beverage sales alone increased 5% to $150,118,000or $7,470,000 for the year with increases and decreases throughout our customer base. Gallon sales were up 6% in our base ICEE business, with sales to movie theaters accounting for about 3/4 of the increase.increases spread throughout our customer base. Service revenue increased 8%6% to $71,123,000$78,805,000 for the year with sales increases and decreases spread throughout our customer base. Sales of beverage machines, which tend to fluctuate from year to year while following no specific trend, increaseddecreased from $26,413,000$27,073,000 in 20152017 to $31,155,000$23,781,000 in 2016.2018. The estimated number of Company owned frozen beverage dispensers was 23,00024,000 and 22,00025,000 at September 24, 201628, 2019 and September 26, 2015,29, 2018, respectively. Operating income in our Frozen Beverage segment increased from $24,582,000$26,272,000 in 20152017 to $26,653,000$28,415,000 in 2016 due primarily to2018 as a result of higher beverage sales in all areas of the business.and service revenue.
CONSOLIDATED
Other than as commented upon above by segment, there are no material specific reasons for the reported sales increases or decreases. Sales levels can be impacted by the appeal of our products to our customers and consumers and their changing tastes, competitive and pricing pressures, sales execution, marketing programs, seasonal weather, customer stability and general economic conditions.
Gross profit as a percentage of sales decreased to 30.67%29.54% in 20162018 from 30.82%30.53% in 2015. Gross2017. Although higher sales benefited our gross margin, the decrease in gross profit percentage benefitted from lower ingredient costs, pricing and increased food service handhelds and funnel cake business whichmargin was more than offsetcaused by a number of factors including higher costs infor payroll and workers compensation insurance, inefficiencies at our frozen beverages businessLabriola production facility, shutdown costs of our Chambersburg facility, lower sales of our MARY B’S biscuits and increased trade spending related to the introductioncosts, idle overhead during an upgrade of WHOLE FRUIT Organic juice tubes, OREO churros, PILLSBURY mini dessert pies and new PHILLY SWIRL products inone of our retail supermarket business,production facilities as well as by lower volume in mostabout $500,000 of costs related to Hurricane Florence’s impact on our food service segment andNorth Carolina plant. Last year’s gross profit margin percentage benefitted from $1.8 million gain on an insurance recovery related to product quality issues in our retail supermarket business and the product withdrawal in our food service segment mentioned previously.2016 fiscal year which was recorded as a reduction of cost of goods sold.
Total operating expenses increased $1,655,000$12,595,000 to $191,657,000$225,511,000 in fiscal 20162018 and as a percentage of sales decreasedincreased to 19.31%19.81% of sales from 19.46%19.64% in 2015.2017. Marketing expenses were 8.66% and 8.72%decreased to 8.38% this year from 8.71% of sales in 20162017 primarily because of lower spending to support warehouse club store sales in our foodservice business and 2015, respectively.lower marketing expenses of the acquired Hill & Valley and Labriola businesses. Distribution expenses as a percent of sales decreasedincreased to 7.36%8.11% from 7.60%7.55% in 20152018. Distribution expenses have increased due in part to lowerhigher fuel costs and shipping efficiencies.the recent implementation of the electronic logging device mandate. We expect distribution expenses to remain higher through at least the first quarter of our 2019 fiscal year. Administrative expenses were 3.25%3.32% and 3.16%3.40% of sales in 20162018 and 2015,2017, respectively. Other general expense of $281,000 this year compared to other general income of $207,000 in 2015.
Operating income increased $1,922,000decreased $7,332,000 or 2%6% to $112,810,000$110,775,000 in fiscal year 20162018 as a result of the aforementioned items.
Our investments generated before tax income of $4.1$6.3 million this year, up from $1.2$5.3 million last year as salesdue in increases in the amount of our mutual fund investments net of capital gain distributions, generated a realized loss of $598,000and higher interest rates.
Other income this year comparedincludes $520,000 gain on a sale of property and $869,000 reimbursement of business interruption losses due to the MARY B’s biscuits recall.
Other expenses in 2017 include $1,070,000 of expenses incurred to acquire Hill & Valley, the ICEE distributor and Labriola Bakery.
Net earnings for the year ended September 28, 2019 benefited from a realized loss of $3.9$20.7 million, last year. Although we recognized losses as we decreased our investments in mutual funds, our overall returnor $1.11 per diluted share, gain on the mutual funds has been positive since we first maderemeasurement of deferred tax liabilities and a $8.8 million, or $0.47 per diluted share, reduction in income taxes related primarily to the investmentslower corporate tax rate enacted under the Tax Cuts and Jobs Act in October 2012. We have reduced our investmentsDecember 2017. Net earnings for the year were impacted by a $1.2 million, or $.06 per diluted share, provision for the one-time repatriation tax required under the new federal tax law and by a $1.4 million, or $.07 per diluted share, expense on the remeasurement of deferred tax liabilities due to changes in mutual funds overNew Jersey tax regulations effective July 2018. Excluding the past year to $13 million at September 2016 from $19 million at September 2015 and $128 million at September 2014. The remaining unrealized losses of $520,000 are spread over 4 funds with total fair market value of $12.5 million. The remaining mutual funds presently generate income of 4.9 % per year. We have invested $17 million in Fixed-to-Floating Perpetual Preferred Stock which generates fixed income to call dates in 2018, 2019 and 2025 and then income is based on a spread above LIBOR ifdeferred tax gain, the securities are not called. The annual yield from these investments is presently 5.5%, of which 70% is not subject to income tax. The mutual fundsdeferred tax expense and the Fixed-to-Floating Perpetual Preferred Stock investment securities do not have contractual maturities; however, we classify them as long term assets as it isone-time repatriation tax, our intent to hold them for a period of over one year, although we may sell some or all of them depending on presently unanticipated needs for liquidity or market conditions. We have invested $103 million in corporate bonds which generate fixed income to maturity dates in 2017 through 2021, with $67 million maturing prior to the end of our fiscal year 2018. The bonds presently generate income of about 2.2% per year. Our expectation is that we will hold the corporate bonds to their maturity dates and redeem them at our amortized cost.
The effective income tax rate decreased to 35.0%27.7% from 37.3% last35.2% in the prior year becausereflecting the realized lossesreduction in the federal statutory rate to 21% from 35% on salesJanuary 1, 2018. Last year’s effective tax rate benefited from an unusually high tax benefit on share based compensation of $3,061,000 which compares to this year’s tax benefit of $1,935,000. We are presently estimating an effective tax rate of 26-27% for our mutual fund investments in 2015 and 2016 are not deductible as we do not have capital gains to offset the losses and our income tax expense for 2016 benefitted by $885,000 related to share base compensation (see Note A13).fiscal year 2019.
Net investment after tax income for the year of $2.7 million, or $.14 per share, compared to last year’s net investment after tax loss of $516,000, or $.03 per share.
Net earnings increased $5,792,000$24,422,000 or 8%31%, in the 52 weeks fiscal 20162018 to $75,975,000,$103,596,000, or $.32$5.51 per diluted share, from $79,174,000, or $4.21 per diluted share, in the 53 weeks fiscal 2017 as a result of the aforementioned items.
There are many factors which can impact our net earnings from year to year and in the long run, among which are the supply and cost of raw materials and labor, insurance costs, factors impacting sales as noted above, the continuing consolidation of our customers, our ability to manage our manufacturing, marketing and distribution activities, our ability to make and integrate acquisitions and changes in tax laws and interest rates.
RESULTS OF OPERATIONS
ACQUISITIONS
In October 2013, we acquired the assets of New York Pretzel, a manufacturer and distributor of soft pretzels selling primarily in the northeast to foodservice and retail locations. This business had sales of about $4.3 million in our 2014 fiscal year included in the food service segment.
In May 2014, we acquired the stock of Philly’s Famous Water Ice, Inc. (PHILLY SWIRL). PHILLY SWIRL, located in Tampa, FL, produces frozen novelty products sold primarily to retail supermarket locations throughout the United States and to Canada with annual sales approximating $25 million. Sales of PHILLY SWIRL from the acquisition date to September 26, 2015 were $12.6 million and are included in the retail supermarket segment.
On December 30, 2016, we acquired Hill & Valley Inc., a premium bakery located in Rock Island, Illinois, for approximately $31 million. Hill & Valley, with sales of over $45 million annually, is a manufacturer of a variety of pre-baked cakes, cookies, pies, muffins and other desserts selling to retail in-store bakeries. Hill & Valley is a leading brand of Sugar Free and No Sugar Added pre-baked in-store bakery items. Additionally, Hill & Valley sustains strategic private labeling partnerships with retailers nationwide. Sales and operating income of Hill & Valley included in our 2017 fiscal year operating results were $35,770,000 and $653,000, respectively.
On May 22, 2017, we acquired an ICEE distributor doing business in Georgia and Tennessee for approximately $11 million. Sales and operating income of the acquired business included in our 2017 fiscal year operating results were $1,689,000 and $395,000, respectively.
On August 16, 2017, we acquired Labriola Baking Company, a premium bakery of breads and artisan soft pretzels located in Alsip, Illinois for approximately $6 million. Labriola Bakery, with sales of approximately $17 million annually, is a manufacturer of pre-baked breads, rolls and soft pretzels for retail in-store bakery and foodservice outlets nationwide. Sales of Labriola included in our 2017 fiscal year operating results were $2,061,000 with marginal operating income.
These acquisitions were accounted for under the purchase method of accounting, and their operations are included in the accompanying consolidated financial statements from their respective acquisition dates.
LIQUIDITY AND CAPITAL RESOURCES
Although there are many factors that could impact our operating cash flow, most notably net earnings, we believe that our future operating cash flow, along with our borrowing capacity, our current cash and cash equivalent balances and our investment securities is sufficient to fund future growth and expansion. See Note C to our financial statements for a discussion of our investment securities.
Fluctuations in the value of the Mexican and Canadian currencies and the resulting translation of the net assets of our Mexican and Canadian subsidiaries caused an increase of $909,000 in accumulated other comprehensive loss in 2019, $2,738,000 in accumulated other comprehensive loss in 2018 and a decrease of $3,745,000 in accumulated other comprehensive loss in 2017, an increase of $3,065,000 in accumulated other comprehensive loss in 2016 and an increase of $5,389,000 in accumulated other comprehensive loss in 2015.2017. In 2017,2019, sales of the two subsidiaries were $31,001,000$33,906,000 as compared to $27,075,000$32,459,000 in 20162018 and $25,313,000$31,001,000 in 2015.2017.
In our fiscal year ended September 30, 2017, we purchased and retired 142,665 shares of our common stock at a cost of $18,228,763. In our second quarter, we purchased and retired 12,926 shares at a cost of $1,682,342. In our third quarter, we purchased and retired 13,004 shares at a cost of $1,691,357. In our fourth quarter, we purchased and retired 116,735 shares at a cost of $14,855,064.
In our fiscal year ended September 24, 2016,29, 2018, we purchased and retired 141,70020,604 shares of our common stock at a cost of $15,265,019.$2,794,027.
In our fiscal year ended September 26, 2015, we purchased and retired 72,698We did not purchase any shares of our common stock at a cost of $8,011,118.in our fiscal year ended September 28, 2019.
In November 2016, we entered into an amendment and modification to an amended and restated loan agreement with our existing banks which provides for up to a $50,000,000 revolving credit facility repayable in November 2021. The agreement contains restrictive covenants and requires commitment fees in accordance with standard banking practice. There were no outstanding balances under the facility at September 30, 201728, 2019 or at September 24, 2016.29, 2018. The significant financial covenants are:
| Tangible net worth must initially be more than $465 |
| Total funded indebtedness divided by earnings before interest expense, income taxes, depreciation and amortization shall not be greater than 2.25 to 1. |
We were in compliance with the financial covenants described above at September 30, 2017.28, 2019.
We self-insure, up to loss limits, certain insurable risks such as worker's compensation and automobile liability claims. Accruals for claims under our self-insurance program are recorded on a claims-incurred basis. Under this program, the estimated liability for claims incurred but unpaid in fiscal years 20172019 and 20162018 was $2,900,000$3,300,000 and $1,900,000,$4,100,000, respectively. In connection with certain self-insurance agreements, we customarily enter into letters of credit arrangements with our insurers. At both September 30, 201728, 2019 and September 24, 2016,29, 2018, we had outstanding letters of credit totaling $8,575,000 and $8,575,000, respectively.$9,275,000.
The following table presents our contractual cash flow commitments on long-term debt, operating leases and purchase commitments for raw materials and packaging. See Notes to the consolidated financial statements for additional information on our long-term debt and operating leases.
Payments Due by Period | Payments Due by Period | |||||||||||||||||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||||||||||
Less | Less | |||||||||||||||||||||||||||||||||||||||
Than | 1-3 | 4-5 | After | Than | 1-3 | 4-5 | After | |||||||||||||||||||||||||||||||||
Total | 1 Year | Years | Years | 5 Years | Total | 1 Year | Years | Years | 5 Years | |||||||||||||||||||||||||||||||
Long-term debt, including current maturities | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||||||
Capital lease obligations | 1,244 | 340 | 568 | 336 | 1,057 | 339 | 505 | 213 | - | |||||||||||||||||||||||||||||||
Purchase commitments | 75,000 | 73,500 | 1,500 | - | - | 100,000 | 97,000 | 3,000 | - | - | ||||||||||||||||||||||||||||||
Operating leases | 82,514 | 15,441 | 24,263 | 14,772 | 28,038 | 79,538 | 14,814 | 23,177 | 15,959 | 25,588 | ||||||||||||||||||||||||||||||
Total | $ | 158,758 | $ | 89,281 | $ | 26,331 | $ | 15,108 | $ | 28,038 | $ | 180,595 | $ | 112,153 | $ | 26,682 | $ | 16,172 | $ | 25,588 |
The purchase commitments do not exceed our projected requirements over the related terms and are in the normal course of business.
Fiscal 20172019 Compared to Fiscal 20162018
Cash and cash equivalents and marketable securities held to maturity and available for sale decreased $33,145,000increased $66,714,000 or 12%24%, to $241,243,000$342,749,000 from a year ago for reasons described below.
Accounts receivables, net increased $26,228,000,$8,596,000, or 27%6%, to $124,553,000$140,938,000 in 20172019 because of significantly higher sales in this year’s September month and timing of collections. Inventories increased $14,584,000$3,281,000 or 16%3% to $103,268,000$116,165,000 in 20172019 due to higher sales this year and inventory build for specific first quarter 2018 sales.to support increased service revenue in our frozen beverages business.
Prepaid expenses and other decreasedwas $5,768,000 compared to $3,936,000 from $13,904,000$5,044,000 last year, primarily because last year included $10,574,000 ofas prepaid income taxes as a result of adopting bonus tax depreciation.increased by $787,000.
Net property, plant and equipment increased $43,368,000$10,775,000 to $227,581,000$253,448,000 because purchases of property, plant and equipment for the improvement and expansion of our manufacturing capabilities and frozen carbonated beverage business exceeded depreciation on existing assets and we acquired $10,273,000assets. Although purchases of property, plant and equipment decreased to $57,128,000 in acquisitions. Purchases of property, plant2019 from $60,022,000 in 2018, we have completed and equipment increased to $72,180,000 in 2017 from $48,709,000 in 2016 due tohave ongoing several large projects across our manufacturing base to modernize our facilities to have state-of-the-art systems to produce high quality products, increase capacity and respondmove some production closer to customer requests.our customers. We are continually looking for opportunities to invest in projects at our manufacturing facilities that have a financial payback on capital invested with the goal of improving efficiency and reducing operating costs.
Goodwill increased towas $102,511,000 because of $16,069,000 acquiredfor fiscal year 2019 and $102,511,000 in acquisitions.2018.
Other intangible assets, less accumulated amortization increased $19,453,000decreased $2,840,000 to $61,272,000 as $23,293,000 was acquired in acquisitions$54,922,000 due to amortization during the year net of $480,000 of additions in our frozen beverage segment.
Marketable securities available for sale and $3,840,000held to maturity decreased by $14,202,000 to $150,354,000 as we decreased our holdings of corporate bonds and available for sale securities.
Accounts Payables increased 4% to $72,029,000 from $69,592,000 in 2018.
Accrued insurance liability decreased 7% to $10,457,000 as our estimates for incurred but not yet paid claims under our group insurance and insurance liability programs decreased from a year ago.
Accrued compensation expense increased 4% to $21,154,000 due to an increase in our bonus accrual.
Dividends payable increased to $9,447,000 as our quarterly dividend payment increased to $.50/share from $.45/share.
Deferred income tax liabilities increased $9,598,000 to $61,920,000 from $52,322,000 because of increased liabilities related to depreciation of property and equipment.
Common stock increased $18,404,000 to $45,744,000 in 2019 because of proceeds from the exercise of incentive and nonqualified stock options and stock issued under our stock purchase plan for employees, stock issued under our deferred stock plan and share-based compensation expense.
Net cash provided by operating activities increased $24,132,000 to $147,499,000 in 2019 primarily because of an increase of accounts payable and accrued liabilities of $2,150,000 compared to an decrease of $1,736,000 in 2018, an increase of $744,000 in prepaid expenses and other compared to an increase of prepaid expenses and other in 2018 of $1,120,000, and an increase in inventories of $3,231,000 compared to an increase of $9,639,000 in 2018.
Net cash used in investing activities decreased $29,776,000 to $43,363,000 in 2019 from $73,139,000 in 2018 primarily because proceeds, net of purchases, of marketable securities of $13,067,000 in 2019 compared to purchases, net of proceeds, of marketable securities of $15,810,000 in 2018.
Net cash used in financing activities of $27,336,000 in 2018 decreased to $22,826,000 in 2019 primarily because we did not repurchase any common stock in 2019 and proceeds from the issuance of common stock for stock option exercises was amortized.$5,288,000 higher in 2019 compared to 2018.
In 2019, the major variables in determining our net increase in cash and cash equivalents and marketable securities were our net earnings, depreciation and amortization of fixed assets, changes in accounts receivable, accounts payable and accrued liabilities and changes in deferred tax liabilities, purchases of property, plant and equipment and payments of cash dividends. Other variables which in the past have had a significant impact on our change in cash and cash equivalents and marketable securities are proceeds from borrowings, repurchases of our common stock, payments of long-term debt and purchases of companies. As discussed in results of operations, our net earnings may be influenced by many factors. Depreciation and amortization of fixed assets is primarily determined by past purchases of property, plant and equipment although it could be impacted by a significant acquisition. Purchases of property, plant and equipment are primarily determined by our ongoing normal manufacturing and marketing requirements but could be increased significantly for manufacturing expansion requirements or large frozen beverage customer needs. From time to time, we have repurchased common stock and we anticipate that we will do so again in the future. We are actively seeking acquisitions that could be a
significant use of cash. Although we have no long-term debt at September 28, 2019, we may borrow in the future depending on our needs.
Fiscal 2018 Compared to Fiscal 2017
Cash and cash equivalents and marketable securities held to maturity and available for sale increased $34,792,000 or 14%, to $276,035,000 from a year ago for reasons described below.
Accounts receivables, net increased $7,789,000, or 6%, to $132,342,000 in 2018 because of higher weekly sales in this year’s September month and timing of collections. Inventories increased $9,616,000 or 9% to $112,884,000 in 2018 due to higher sales this year and inventory build for specific first quarter 2019 sales.
Prepaid expenses and other was $5,044,000 compared to $3,936,000 last year.
Net property, plant and equipment increased $15,092,000 to $242,673,000 because purchases of property, plant and equipment for the improvement and expansion of our manufacturing capabilities and frozen carbonated beverage business exceeded depreciation on existing assets. Although purchases of property, plant and equipment decreased to $60,022,000 in 2018 from $72,180,000 in 2017, we have completed and have ongoing several large projects across our manufacturing base to modernize our facilities to have state-of-the-art systems to produce high quality products, increase capacity and move some production closer to our customers. We are continually looking for opportunities to invest in projects at our manufacturing facilities that have a financial payback on capital invested with the goal of improving efficiency and reducing operating costs.
Goodwill was $102,511,000 at both year ends.
Other intangible assets, less accumulated amortization decreased $3,510,000 to $57,762,000 solely due to amortization during the year.
Marketable securities available for sale and held to maturity increased by $16,545,000$14,275,000 to $150,281,000$164,556,000 as we continue to increaseincreased our income generating investments.holdings of corporate bonds.
Accounts Payables increased 17%decreased 4% to $69,592,000 from $72,729,000 from $62,026,000 in 2016. About 40% of the increase was at our acquired Hill & Valley business and the balance was due to general increase in business.2017.
Accrued insurance liability increased 4%6% to $10,558,000$11,217,000 as our estimates for incurred but not yet paid claims under our group insurance and insurance liability programs increased from a year ago.
Accrued compensation expense increased 21%2% to $19,826,000$20,297,000 due to an increase in our employee base and a general increase in the level of pay rates and additionalnet of a reduced accrual because of the change in timing due to this year having 52 weeks compared to 53 weeks.weeks last year.
Dividends payable increased to $7,838,000$8,438,000 as our quarterly dividend payment increased to $.42/$.45/share from $.39/$.42/share.
Deferred income tax liabilities increased $14,519,000decreased $10,383,000 to $62,705,000$52,322,000 from $48,186,000$62,705,000 because of the remeasurement of deferred tax liabilities due to the lower corporate tax rate enacted under the Tax Cut and Jobs Act in December 2017, net of higher corporate taxes enacted by New Jersey effective July 1,2008 and net of further increased liabilities related to depreciation of property and equipment, amortization of goodwill and other intangible assets and the addition of $6,632,000 of deferred tax liabilities as a result of purchase accounting for the Hill & Valley acquisition.equipment.
Common stock decreased $7,950,000increased $9,958,000 to $17,382,000$27,340,000 in 20172018 because repurchases of our common stock of $18,229,000 exceeded$2,794,000 were less than increases totaling $10,279,000$12,752,000 from the exercise of incentive and nonqualified stock options, stock issued under our stock purchase plan for employees, stock issued under our deferred stock plan and share-based compensation expense.
Net cash provided by operating activities increased $4,124,000decreased $1,982,000 to $125,349,000$123,367,000 in 20172018 primarily because of an increase in net earnings of $3,199,000,$24,422,000, an increase of accounts receivable, net of $7,917,000 in 2018 compared to an increase of $20,370,000 in 2017 and higher depreciation of fixed assets of $4,728,000 in 2018 did not offset a decrease in deferred tax liabilities of $10,392,000 compared to an increase of $7,847,000 in 2017, a decrease of accounts payable and accrued liabilities of $9,521,000$918,000 compared to $3,888,000an increase of $9,521,000 in 2016, a decrease2017, an increase of $10,265,000$1,120,000 in prepaid expenses and other compared to an increasea decrease of prepaid expenses and other in 20162017 of $7,386,000, as well as by higher depreciation of fixed assets of $3,675,000 in 2017 , all of which were partially offset by an increase of accounts receivable of $20,370,000 in 2017 compared to a decrease of $3,571,000 in 2016$10,265,000, and an increase in inventories of $7,410,000$9,639,000 compared to an increase of $6,295,000$7,410,000 in 2016.2017.
Net cash used in investing activities increased $60,717,000decreased $62,180,000 to $73,139,000 in 2018 from $135,319,000 in 2017 from $74,602,000 in 2016 because of payments for purchases of companies, net of cash acquired of $0 in 2018 compared to $47,698,000 in 2017 compared to none in 2016 and increaseddecreased purchases of property, plant and equipment of $23,471,000$12,158,000 from 20162017 to 2017. 2018.
Net cash used in financing activities of $37,573,000 in 2016 increased to $42,213,000 in 2017 decreased to $27,336,000 in 2018 primarily because of increased dividend payments of $2,336,000 and increasedlower repurchases of common stock of $2,964,000.$15,435,000 in 2018 compared to 2017.
In 2017,2018, the major variables in determining our net increase in cash and cash equivalents and marketable securities were our net earnings, depreciation and amortization of fixed assets, changes in accounts receivable, and accounts payable purchases of companies,and accrued liabilities and changes in deferred tax liabilities, purchases of property, plant and equipment, payments of cash dividend and the repurchase of common stock. Other variables which in the past have had a significant impact on our change in cash and cash equivalents and marketable securities are proceeds from borrowings, and payments of long-term debt.debt and purchases of companies. As discussed in results of operations, our net earnings may be influenced by many factors. Depreciation and amortization of fixed assets is primarily determined by past purchases of property, plant and equipment although it could be impacted by a significant acquisition. Purchases of property, plant and equipment are primarily determined by our ongoing normal manufacturing and marketing requirements but could be increased significantly for manufacturing expansion requirements or large frozen beverage customer needs. From time to time, we have repurchased common stock and we anticipate that we will do so again in the future. We are actively seeking acquisitions that could be a significant use of cash. Although we have no long-term debt at September 30, 2017,28, 2019, we may borrow in the future depending on our needs.
Fiscal 2016 Compared to Fiscal 2015
Cash and cash equivalents and marketable securities held to maturity and available for sale increased $34,401,000, or 14%, to $274,388,000 from a year ago for reasons described below.
Accounts receivables, net decreased $4,324,000, or 4%, to $98,325,000 in 2016 because of lower sales in this year’s September month and timing of collections. Inventories increased $6,027,000 or 7% to $88,684,000 in 2016 due to sluggish September sales this year and changes in product mix.
Prepaid expenses and other increased to $13,904,000 from $6,557,000 last year due primarily to an increase in prepaid income taxes as a result of adopting bonus depreciation.
Net property, plant and equipment increased $12,159,000 to $184,213,000 because purchases of property, plant and equipment for the improvement and expansion of our manufacturing capabilities and frozen carbonated beverage business exceeded depreciation on existing assets. Purchases of property, plant and equipment were $48,709,000 in 2016 and $48,641,000 in 2015.
Goodwill remained at $86,442,000 because there was no goodwill acquired in acquisitions and no impairment charges.
Other intangible assets, less accumulated amortization decreased $4,000,000 to $41,819,000 due to amortization of $5,078,000 during the year, offset by $1,078,000 paid for the acquisition of the HEARTBAR brand in the food service segment.
Marketable securities available for sale and held to maturity increased by $27,438,000 to $133,736,000 as we reinvested proceeds from the 2015 sales of our mutual funds investments.
Accounts Payables increased 5% to $62,026,000 from $59,206,000.
Accrued insurance liability was essentially unchanged at $10,119,000 as our estimates for incurred but not yet paid claims under our group insurance and insurance liability programs remained about the same as at September 2015.
Accrued compensation expense increased 7% to $16,340,000 due to an increase in our employee base and a general increase in the level of pay rates.
Dividends payable increased to $7,280,000 as our quarterly dividend payment increased to $.39/share from $.36/share.
Deferred income tax liabilities increased $7,663,000 to $48,186,000 from $40,523,000 because of increased liabilities related to depreciation of property and equipment.
Other long-term liabilities include $354,000 of gross unrecognized tax benefits at September 24, 2016 and $334,000 at September 26, 2015.
Common stock decreased $6,321,000 to $25,332,000 in 2016 because repurchases of our common stock of $15,265,000 exceeded increases totaling $8,945,000 from the exercise of incentive and nonqualified stock options, stock issued under our stock purchase plan for employees, stock issued under our deferred stock plan and share-based compensation expense.
Net cash provided by operating activities increased $17,304,000 to $121,225,000 in 2016 primarily because of an increase in net earnings of $5,792,000, a reduction of accounts receivable of $3,571,000 in 2016 compared to an increase of $3,123,000 in 2015, an increase of accounts payable and accrued liabilities of $3,888,000 compared to $287,000 in 2015 and an increase in deferred income taxes of $7,700,000, as well as by higher depreciation of fixed assets of $2,180,000 in 2016.
Net cash used in investing activities increased $46,111,000 to $74,602,000 in 2016 from $28,491,000 in 2015 primarily because purchases of marketable securities, net of proceeds, was $28,562,000 in 2016 compared to proceeds from marketable securities, net of purchases, of $19,877,000, in 2015. We reduced our holdings of mutual funds in 2015 by $109 million.
Net cash used in financing activities of $29,745,000 in 2015 increased to $37,573,000 in 2016 primarily because of increased dividend payments of $2,369,000 and increased repurchases of common stock of $7,254,000.
In 2016, the major variables in determining our net increase in cash and cash equivalents and marketable securities were our net earnings, depreciation and amortization of fixed assets, changes in accounts receivable and accounts payable, purchases of property, plant and equipment, payments of cash dividend and the repurchase of common stock. Other variables which in the past have had a significant impact on our change in cash and cash equivalents and marketable securities are purchases of companies and proceeds from borrowings and payments of long-term debt. As discussed in results of operations, our net earnings may be influenced by many factors. Depreciation and amortization of fixed assets is primarily determined by past purchases of property, plant and equipment although it could be impacted by a significant acquisition. Purchases of property, plant and equipment are primarily determined by our ongoing normal manufacturing and marketing requirements but could be increased significantly for manufacturing expansion requirements or large frozen beverage customer needs.
Off –Balance–Balance Sheet Arrangements
The Company does not have anyhas off-balance sheet arrangements for operating leases and purchase commitments as of September 30, 2017.28, 2019.
Item 7A. | Quantitative And Qualitative Disclosures About Market Risk |
The following is the Company’s quantitative and qualitative analysis of its financial market risk:
Interest Rate Sensitivity
The Company has in the past entered into interest rate swaps to limit its exposure to interest rate risk and may do so in the future if the Board of Directors feels that such non-trading purpose is in the best interest of the Company and its shareholders. As of September 30, 2017,28, 2019, the Company had no interest rate swap contracts.
Interest Rate Risk
At September 30, 2017,28, 2019, the Company had no long-term debt obligations.
Purchasing Risk
The Company’s most significant raw material requirements include flour, shortening, corn syrup, sugar, juice, cheese, chocolate, and a variety of nuts. The Company attempts to minimize the effect of future price fluctuations related to the purchase of raw materials primarily through forward purchasing to cover future manufacturing requirements, generally for periods from 1 to 12 months. Future contracts are not used in combination with forward purchasing of these raw materials. The Company’s procurement practices are intended to reduce the risk of future price increases, but also may potentially limit the ability to benefit from possible price decreases.
Foreign Exchange Rate Risk
The Company has not entered into any forward exchange contracts to hedge its foreign currency rate risk as of September 30, 2017,28, 2019, because it does not believe its foreign exchange exposure is significant.
Item 8. | Financial Statements And Supplementary Data |
The financial statements of the Company are filed under this Item 8, beginning on page F-1 of this report.
Item 9. | Changes In And Disagreements With Accountants OnAccounting And Financial Disclosure |
None.
Item 9A. |
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Disclosure Controls and Procedures
We carried out an evaluation under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), as amended for financial reporting, as of September 30, 2017.28, 2019. Based on that evaluation, our chief executive officer and chief financial officer concluded that these controls and procedures are effective at a reasonable assurance level.
Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the rules and forms of the SEC. These disclosure controls and procedures include, among other things, controls and procedures designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
Management’sManagement’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, the chief executive officer and chief financial officer and effected by the board of directors and management to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
● | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; |
● |
|
| Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with |
● | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of September 30, 2017.28, 2019. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in the 2013 Internal Control-Integrated Framework.
Based on our assessment, our management believes that, as of September 30, 2017,28, 2019, our internal control over financial reporting is effective. There have been no changes that occurred during our fourth quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Our independent registered public accounting firm, Grant Thornton LLP, audited our internal control over financial reporting as of September 30, 2017.28, 2019. Their report, dated November 28, 2017,27, 2019, expressed an unqualified opinion on our internal control over financial reporting. That report appears in Item 15 of Part IV of this Annual Report on Form 10-K and is incorporated by reference to this Item 9A.
Item 9B. | Other Information |
There was no information required on Form 8-K during the quarter that was not reported.
PART III
Item 10. | Directors, Executive Officers and Corporate Governance |
The following is a list of the executive officers of the Company and their principal past occupations or employment. All such persons serve at the pleasure of the Board of Directors and have been elected to serve until the Annual Meeting of Shareholders on February 9, 201811, 2020 or until their successors are duly elected.
Name | Age | Position |
Gerald B. Shreiber |
| Chairman of the Board, President, Chief Executive Officer and Director |
Dennis G. Moore |
| Senior Vice President, Chief Financial Officer Treasurer and Director |
Robert M. Radano |
| Senior Vice President,Sales and Chief Operating Officer |
Dan Fachner |
| President of The ICEE Company Subsidiary |
Gerard G. Law |
| Senior Vice President and Assistant to the President |
Robert J. Pape |
| Senior Vice President Sales |
Gerald B. Shreiber is the founder of the Company and has served as its Chairman of the Board, President, and Chief Executive Officer since its inception in 1971. His term as a director expires in 2020.
Dennis G. Moore joined the Company in 1984. He served in various controllership functions prior to becoming the Chief Financial Officer in June 1992. His term as a director expires in 2022.
Robert M. Radano joined the Company in 1972 and in May 1996 was named Chief Operating Officer of the Company. Prior to becoming Chief Operating Officer, he was Senior Vice President, Sales responsible for national food service sales of J & J.
Dan Fachner has been an employee of ICEE-USA Corp., which was acquired by the Company in May 1987, since 1979. He was named Senior Vice President of The ICEE Company in April 1994 and became President in May 1997.
Gerard G. Law joined the Company in 1992. He served in various manufacturing and sales management capacities prior to becoming Senior Vice President, Western Operations in 2009. He was named to his present position in 2011 in which he has responsibility for marketing, research and development and overseeing a number of the manufacturing facilities of J & J.
Robert J. Pape joined the Company in 1998. He served in various sales and sales management capacities prior to becoming Senior Vice President Sales in 2010.
Portions of the information concerning directors and executive officers, appearing under the captions “Information Concerning Nominees For Election To Board” and “Information Concerning Continuing Directors And Executive Officers” and information concerning Section 16(a) Compliance appearing under the caption “Compliance with Section 16(a) of the Securities Exchange Act of 1934” in the Company’sCompany’s Proxy Statement filed with the SEC in connection with the Annual Meeting of Shareholders to be held on February 9, 201811, 2020 (“20172019 Proxy Statement”) is incorporated herein by reference.
Portions of the information concerning the Audit Committee, the requirement for an Audit Committee Financial Expert and the Nominating Committee in the Company’s 20172019 Proxy Statement filed with the SEC in connection with the Annual Meeting of Shareholders to be held on February 9, 201811, 2020 is incorporated herein by reference.
The Company has adopted a Code of Ethics pursuant to Section 406 of the Sarbanes-Oxley Act of 2002, which applies to the Company’s principal executive officer and senior financial officers. The Company has also adopted a Code of Business Conduct and Ethics which applies to all employees. The Company will furnish any person, without charge, a copy of the Code of Ethics upon written request to J & J Snack Foods Corp., 6000 Central Highway, Pennsauken, New Jersey 08109, Attn: Marjorie S. Roshkoff, Esq. A copy of the Code of Ethics can also be found on our website at www.jjsnack.com.www.jjsnack.com. Any waiver of any provision of the Code of Ethics granted to the principal executive officer or senior financial officer may only be granted by a majority of the Company’s disinterested directors. If a waiver is granted, information concerning the waiver will be posted on our website www.jjsnack.com for a period of 12 months.
Item 11. | Executive Compensation |
Information concerning executive compensation appearing in the Company’s 20172019 Proxy Statement under the caption “Management Remuneration” is incorporated herein by reference.
Item 12. | Security Ownership Of Certain Beneficial Owners And Management And Related Stockholder Matters |
Information concerning the security ownership of certain beneficial owners and management appearing in the Company’s 20172019 Proxy Statement under the caption “Security Ownership of Certain Beneficial Owners and Management” is incorporated herein by reference.
The following table details information regarding the Company’s existing equity compensation plans as of September 30, 2017.28, 2019.
( a ) | ( b ) | ( c ) | ( a ) | ( b ) | ( c ) | |||||||||||||||||||
Number of | Number of | |||||||||||||||||||||||
Securities | Securities | |||||||||||||||||||||||
Remaining | Remaining | |||||||||||||||||||||||
available for | available for | |||||||||||||||||||||||
future | future | |||||||||||||||||||||||
Number of | Weighted- | issuance under | Number of | Weighted- | issuance under | |||||||||||||||||||
securities to | average | equity | securities to | average | equity | |||||||||||||||||||
be issued upon | exercise | compensation | be issued upon | exercise | compensation | |||||||||||||||||||
exercise of | price of | plans | exercise of | price of | plans | |||||||||||||||||||
outstanding | outstandng | (excluding | outstanding | outstandng | (excluding | |||||||||||||||||||
options, | options, | securities | options, | options, | securities | |||||||||||||||||||
warrants and | warrants and | reflected in | warrants and | warrants and | reflected in | |||||||||||||||||||
Plan Category | rights | rights | column (a) ) | rights | rights | column (a) ) | ||||||||||||||||||
Equity compensation plans approved by security holders | 711,000 | $ | 102.07 | 486,000 | 802,000 | $ | 128.25 | 916,000 | ||||||||||||||||
Equity compensation plans not approved by security holders | - | - | - | - | - | - | ||||||||||||||||||
Total | 711,000 | $ | 102.07 | 486,000 | 802,000 | $ | 128.25 | 916,000 |
Column A includes 704,000436,000 from stock option plans that have beenwere replaced subsequent to September 30, 2017. Those plans have been replaced by a plan, subject to shareholder approvalapproved by shareholders in February 2018, that has 800,000454,000 shares available for future issuance as of the date of this Form 10-K.
Item 13. | Certain Relationships And Related Transactions, and Director Independence |
Information concerning the Certain Relationships and Related Transactions, and Director Independence in the Company’s 20172019 Proxy Statement is incorporated herein by reference.
Item 14. | Principal Accountant Fees And Services |
Information concerning the Principal Accountant Fees and Services in the Company’s 20172019 Proxy Statement is incorporated herein by reference.
PART IV
Item 15. | Exhibits, Financial Statement Schedules |
Item 15. Exhibits, Financial Statement Schedules
(a) | The following documents are filed as part of this Report: |
(1) |
|
The financial statements filed as part of this report are listed on the Index to Consolidated Financial Statements and Financial Statements Schedule on page F-1.
(2) |
|
Schedule II – Valuation and Qualifying Accounts
All other schedules are omitted either because they are not applicable or because the information required is contained in the financial statements or notes thereto.
(b) |
|
3.1
Amended and Restated Certificate of Incorporation filed February 28, 1990 (Incorporated by reference from the Company’sCompany’s Form 10-Q dated May 4, 1990).
3.2
4.3
21.1**
Subsidiaries of J & J Snack Foods Corp.
23.1**
Consent of Independent Registered Public Accounting Firm.
31.1**
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2**
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**
32.2**
101**
The following financial information from J&J Snack Foods Corp.'s's Form 10-K for the year ended September 30, 2017,28, 2019, formatted in Inline XBRL (eXtensible Business Reporting Language):
(i) | Consolidated Balance Sheets, |
(ii) | Consolidated Statements of Earnings, |
(iii) | Consolidated Statements of Comprehensive Income, |
(iv) | Consolidated Statements of Cash Flows, |
(v) | Consolidated Statement of Changes in Stockholders' Equity and |
(vi) | The Notes to the Consolidated Financial Statements |
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
_____________
*Compensatory Plan
**Filed Herewith
SIGNATURES
Pursuant to the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
J & J SNACK FOODS CORP. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Board of Directors and Shareholders J&J Snack Foods Corp. and Subsidiaries
Opinion on the financial statements We have audited the accompanying consolidated balance sheets of J&J Snack Foods Corp. (a New Jersey corporation) and subsidiaries (the “Company”) as of September We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of September 28, 2019, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission Basis for opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical audit matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Net Revenue Adjustments As described in Note A to the consolidated financial statements, contracts with customers include some form of variable consideration, including sales discounts, trade promotions and certain other sales and consumer incentives, including rebates and coupon redemption. Variable consideration is treated as a reduction in revenue when the related revenue is recognized, and is recorded using the most likely amount method, with updates to estimates and related accruals of variable consideration occurring each period based on historical experience and changes in circumstances. We identified the estimation of the reserves for these net revenue adjustments by management as a critical audit matter because the inputs and assumptions utilized by management in estimating these reserves, including consistency of historical data and contract pricing, require significant judgment and create a high degree of estimation uncertainty. Consequently, auditing these assumptions requires subjective auditor judgment. Our audit procedures related to the estimation of the reserves included the following, among others.
/s/ GRANT THORNTON LLP We have served as the Company’s auditor since 1984. Philadelphia, Pennsylvania November 27, 2019 Board of Directors and Shareholders J&J Snack Foods Corp. and Subsidiaries Opinion on internal control over financial reporting We have audited the internal control over financial reporting of J&J Snack Foods Corp. (a New Jersey corporation) and subsidiaries (the “Company”) as of September 28, 2019, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 28, 2019, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended September 28, 2019, and our report dated November 27, 2019 expressed an unqualified opinion on those financial statements. Basis for opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our
Definition and limitations of internal control over financial reporting A
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ GRANT THORNTON LLP
Philadelphia, Pennsylvania November
The accompanying notes are an integral part of these statements.
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