UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
☒ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the period ended December 30, 2017June 27, 2020
or
☐ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File Number: 0-14616
J & J&J SNACK FOODS CORP.
(Exact name of registrant as specified in its charter)
New Jersey | 22-1935537 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
6000 Central Highway, Pennsauken, NJNew Jersey 08109
(Address of principal executive offices)
Telephone (856) 665-9533
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered |
Common Stock, no par value | JJSF | The NASDAQ Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
X Yes No
☒ Yes | ☐ No |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
X Yes No
☒ Yes | ☐ No |
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 | Accelerated filer | ☐ | ||||
Smaller reporting company | ☐ | ||||||
Non-accelerated filer | ☐ | ||||||
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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 X☒ No
As January 25, 2018of July 24,2020 there were 18,678,47318,894,908 shares of the Registrant’s Common Stock outstanding.
INDEX
Page | ||
Number | ||
Part I. | Financial Information | |
Item l. | Consolidated Financial Statements | |
Consolidated Balance Sheets – June 27, 2020 (unaudited) and September 28, 2019 | 3 | |
Consolidated Statements of (Loss) Earnings (unaudited) – Three and nine months ended June 27, 2020 and June 29, 2019 | 4 | |
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Consolidated Statements of Comprehensive (Loss) Income (unaudited) – Three | 5 | |
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| Consolidated Statements of Changes In Stockholders’ Equity (unaudited) – Three and nine months Ended June 27, 2020 and June 29, 2019 | 6 |
Consolidated Statements of Cash Flows (unaudited) – | 7 | |
| Notes to the Consolidated Financial Statements (unaudited) | 8 |
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Item 2. |
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
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Item 4. | Controls and Procedures |
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Part II. | Other Information | |
Item 6. | Exhibits |
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J & J SNACK FOODS CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts) |
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December 30, | September 30, | June 27, | ||||||||||||||
2017 | 2017 | 2020 | September 28, | |||||||||||||
(unaudited) | (unaudited) | 2019 | ||||||||||||||
Assets | ||||||||||||||||
Current assets | ||||||||||||||||
Cash and cash equivalents | $ | 81,089 | $ | 90,962 | $ | 169,961 | $ | 192,395 | ||||||||
Marketable securities held to maturity | 49,445 | 59,113 | 58,268 | 51,091 | ||||||||||||
Accounts receivable, net | 109,709 | 124,553 | 116,488 | 140,938 | ||||||||||||
Inventories | 113,049 | 103,268 | 120,564 | 116,165 | ||||||||||||
Prepaid expenses and other | 3,800 | 3,936 | 13,660 | 5,768 | ||||||||||||
Total current assets | 357,092 | 381,832 | 478,941 | 506,357 | ||||||||||||
Property, plant and equipment, at cost | ||||||||||||||||
Land | 2,494 | 2,482 | 2,494 | 2,494 | ||||||||||||
Buildings | 26,582 | 26,741 | 26,582 | 26,582 | ||||||||||||
Plant machinery and equipment | 258,738 | 257,172 | 331,481 | 315,360 | ||||||||||||
Marketing equipment | 277,236 | 278,860 | 253,533 | 240,681 | ||||||||||||
Transportation equipment | 8,438 | 8,449 | 9,905 | 9,725 | ||||||||||||
Office equipment | 25,574 | 25,302 | 34,935 | 31,217 | ||||||||||||
Improvements | 37,999 | 38,003 | 42,291 | 40,626 | ||||||||||||
Construction in progress | 21,997 | 16,880 | 16,199 | 10,039 | ||||||||||||
Total Property, plant and equipment, at cost | 659,058 | 653,889 | 717,420 | 676,724 | ||||||||||||
Less accumulated depreciation and amortization | 429,217 | 426,308 | 452,707 | 423,276 | ||||||||||||
Property, plant and equipment, net | 229,841 | 227,581 | 264,713 | 253,448 | ||||||||||||
Other assets | ||||||||||||||||
Long-term assets | ||||||||||||||||
Goodwill | 102,511 | 102,511 | 123,033 | 102,511 | ||||||||||||
Other intangible assets, net | 60,453 | 61,272 | 81,117 | 54,922 | ||||||||||||
Marketable securities held to maturity | 82,066 | 60,908 | 28,863 | 79,360 | ||||||||||||
Marketable securities available for sale | 30,150 | 30,260 | 13,232 | 19,903 | ||||||||||||
Operating lease right-of-use assets | 64,615 | - | ||||||||||||||
Other | 2,904 | 2,864 | 2,772 | 2,838 | ||||||||||||
Total other assets | 278,084 | 257,815 | ||||||||||||||
Total long-term assets | 313,632 | 259,534 | ||||||||||||||
Total Assets | $ | 865,017 | $ | 867,228 | $ | 1,057,286 | $ | 1,019,339 | ||||||||
Liabilities and Stockholders' Equity | ||||||||||||||||
Current Liabilities | ||||||||||||||||
Current obligations under capital leases | $ | 339 | $ | 340 | ||||||||||||
Current finance lease liabilities | $ | 329 | $ | 339 | ||||||||||||
Accounts payable | 68,033 | 72,729 | 68,829 | 72,029 | ||||||||||||
Accrued insurance liability | 11,215 | 10,558 | 12,131 | 10,457 | ||||||||||||
Accrued liabilities | 10,491 | 7,753 | 6,951 | 7,808 | ||||||||||||
Current operating lease liabilities | 13,913 | - | ||||||||||||||
Accrued compensation expense | 11,764 | 19,826 | 14,814 | 21,154 | ||||||||||||
Dividends payable | 8,400 | 7,838 | 10,873 | 9,447 | ||||||||||||
Total current liabilities | 110,242 | 119,044 | 127,840 | 121,234 | ||||||||||||
Long-term obligations under capital leases | 815 | 904 | ||||||||||||||
Noncurrent finance lease liabilities | 456 | 718 | ||||||||||||||
Noncurrent operating lease liabilities | 56,570 | - | ||||||||||||||
Deferred income taxes | 44,462 | 62,705 | 61,348 | 61,920 | ||||||||||||
Other long-term liabilities | 2,117 | 2,253 | 472 | 1,716 | ||||||||||||
Stockholders' Equity | ||||||||||||||||
Preferred stock, $1 par value; authorized 10,000,000 shares; none issued | - | - | - | - | ||||||||||||
Common stock, no par value; authorized, 50,000,000 shares; issued and outstanding 18,668,000 and 18,663,000 respectively | 18,589 | 17,382 | ||||||||||||||
Common stock, no par value; authorized, 50,000,000 shares; issued and outstanding 18,888,000 and 18,895,000 respectively | 46,560 | 45,744 | ||||||||||||||
Accumulated other comprehensive loss | (12,872 | ) | (8,875 | ) | (16,058 | ) | (12,988 | ) | ||||||||
Retained Earnings | 701,664 | 673,815 | 780,098 | 800,995 | ||||||||||||
Total stockholders' equity | 707,381 | 682,322 | 810,600 | 833,751 | ||||||||||||
Total Liabilities and Stockholders' Equity | $ | 865,017 | $ | 867,228 | $ | 1,057,286 | $ | 1,019,339 |
The accompanying notes are an integral part of these statements. |
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF (LOSS) EARNINGS
(Unaudited)
(in thousands, except per share amounts)
Three months ended | Nine months ended | |||||||||||||||
June 27, | June 29, | June 27, | June 29, | |||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Net Sales | $ | 214,563 | $ | 326,701 | $ | 769,502 | $ | 874,615 | ||||||||
Cost of goods sold | 177,367 | 225,352 | 585,002 | 617,155 | ||||||||||||
Gross Profit | 37,196 | 101,349 | 184,500 | 257,460 | ||||||||||||
Operating expenses | ||||||||||||||||
Marketing | 21,952 | 26,398 | 68,532 | 69,792 | ||||||||||||
Distribution | 21,272 | 24,447 | 69,648 | 70,521 | ||||||||||||
Administrative | 8,374 | 10,668 | 28,166 | 29,909 | ||||||||||||
Plant shutdown impairment costs | 5,072 | - | 5,072 | - | ||||||||||||
Other general (income) expense | (54 | ) | 794 | (183 | ) | 1,343 | ||||||||||
Total operating expenses | 56,616 | 62,307 | 171,235 | 171,565 | ||||||||||||
Operating (loss) income | (19,420 | ) | 39,042 | 13,265 | 85,895 | |||||||||||
Other income (expense) | ||||||||||||||||
Investment income | 1,300 | 1,953 | 2,673 | 5,775 | ||||||||||||
Interest expense & other | (7 | ) | 1,972 | (60 | ) | 1,920 | ||||||||||
(Loss) earnings before income taxes | (18,127 | ) | 42,967 | 15,878 | 93,590 | |||||||||||
Income taxes | (5,480 | ) | 12,095 | 4,157 | 24,838 | |||||||||||
NET (LOSS) EARNINGS | $ | (12,647 | ) | $ | 30,872 | $ | 11,721 | $ | 68,752 | |||||||
(Loss) earnings per diluted share | $ | (0.67 | ) | $ | 1.63 | $ | 0.62 | $ | 3.64 | |||||||
Weighted average number of diluted shares | 18,888 | 18,947 | 19,036 | 18,912 | ||||||||||||
(Loss) earnings per basic share | $ | (0.67 | ) | $ | 1.64 | $ | 0.62 | $ | 3.66 | |||||||
Weighted average number of basic shares | 18,888 | 18,823 | 18,902 | 18,794 |
The accompanying notes are an integral part of these statements.
J&J SNACK FOODS CORP. AND SUBSIDIARIES (in thousands) | |
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Three months ended | ||||||||
December 30, | December 24, | |||||||
2017 | 2016 | |||||||
Net Sales | $ | 265,210 | $ | 225,570 | ||||
Cost of goods sold(1) | 191,931 | 159,675 | ||||||
Gross Profit | 73,279 | 65,895 | ||||||
Operating expenses | ||||||||
Marketing (2) | 21,576 | 20,335 | ||||||
Distribution (3) | 21,159 | 18,164 | ||||||
Administrative (4) | 9,356 | 8,098 | ||||||
Other general income | (40 | ) | (29 | ) | ||||
Total Operating Expenses | 52,051 | 46,568 | ||||||
Operating Income | 21,228 | 19,327 | ||||||
Other income (expense) | ||||||||
Investment income | 1,489 | 1,227 | ||||||
Interest expense & other | 509 | (26 | ) | |||||
Earnings before income taxes | 23,226 | 20,528 | ||||||
Income tax (benefit) expense | (13,023 | ) | 6,988 | |||||
NET EARNINGS | $ | 36,249 | $ | 13,540 | ||||
Earnings per diluted share | $ | 1.93 | $ | 0.72 | ||||
Weighted average number of diluted shares | 18,778 | 18,787 | ||||||
Earnings per basic share | $ | 1.94 | $ | 0.72 | ||||
Weighted average number of basic shares | 18,666 | 18,686 |
Three months ended | Nine months ended | |||||||||||||||
June 27, | June 29, | June 27, | June 29, | |||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Net (Loss) Earnings | $ | (12,647 | ) | $ | 30,872 | $ | 11,721 | $ | 68,752 | |||||||
Foreign currency translation adjustments | 41 | 496 | (3,070 | ) | (469 | ) | ||||||||||
Total Other Comprehensive Income (loss) | 41 | 496 | (3,070 | ) | (469 | ) | ||||||||||
Comprehensive (Loss) Income | $ | (12,606 | ) | $ | 31,368 | $ | 8,651 | $ | 68,283 |
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The accompanying notes are an integral part of these statements. |
J & J |
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Three months ended | ||||||||
December 30, | December 24, | |||||||
2017 | 2016 | |||||||
Net Earnings | $ | 36,249 | $ | 13,540 | ||||
Foreign currency translation adjustments | (3,887 | ) | (1,104 | ) | ||||
Unrealized holding loss on marketable securities | (110 | ) | (103 | ) | ||||
Total Other Comprehensive Loss | (3,997 | ) | (1,207 | ) | ||||
Comprehensive Income | $ | 32,252 | $ | 12,333 |
Accumulated | ||||||||||||||||||||
Other | ||||||||||||||||||||
Common Stock | Comprehensive | Retained | ||||||||||||||||||
Shares | Amount | Loss | Earnings | Total | ||||||||||||||||
Balance at September 28, 2019 | 18,895 | $ | 45,744 | $ | (12,988 | ) | $ | 800,995 | $ | 833,751 | ||||||||||
Issuance of common stock upon exercise of stock options | 5 | 468 | - | - | 468 | |||||||||||||||
Foreign currency translation adjustment | - | - | 810 | - | 810 | |||||||||||||||
Dividends declared | - | - | - | (10,867 | ) | (10,867 | ) | |||||||||||||
Share-based compensation | - | 1,299 | - | - | 1,299 | |||||||||||||||
Net earnings | - | - | - | 17,059 | 17,059 | |||||||||||||||
Balance at December 28, 2019 | 18,900 | 47,511 | (12,178 | ) | 807,187 | 842,520 | ||||||||||||||
Issuance of common stock upon exercise of stock options | 47 | 5,049 | - | - | 5,049 | |||||||||||||||
Issuance of common stock for employee stock purchase plan | 6 | 783 | - | - | 783 | |||||||||||||||
Foreign currency translation adjustment | - | - | (3,921 | ) | - | (3,921 | ) | |||||||||||||
Issuance of common stock under deferred stock plan | 1 | 90 | - | - | 90 | |||||||||||||||
Dividends declared | - | - | - | (10,878 | ) | (10,878 | ) | |||||||||||||
Share-based compensation | - | 1,088 | - | - | 1,088 | |||||||||||||||
Repurchase of common stock | (66 | ) | (8,972 | ) | - | - | (8,972 | ) | ||||||||||||
Net earnings | - | - | - | 7,309 | 7,309 | |||||||||||||||
Balance at March 28, 2020 | 18,888 | 45,549 | (16,099 | ) | 803,618 | 833,068 | ||||||||||||||
Foreign currency translation adjustment | - | - | 41 | - | 41 | |||||||||||||||
Dividends declared | - | - | - | (10,873 | ) | (10,873 | ) | |||||||||||||
Share-based compensation | - | 1,011 | - | - | 1,011 | |||||||||||||||
Net loss | - | - | - | (12,647 | ) | (12,647 | ) | |||||||||||||
Balance at June 27, 2020 | 18,888 | $ | 46,560 | $ | (16,058 | ) | $ | 780,098 | $ | 810,600 | ||||||||||
Accumulated | ||||||||||||||||||||
Other | ||||||||||||||||||||
Common Stock | Comprehensive | Retained | ||||||||||||||||||
Shares | Amount | Loss | Earnings | Total | ||||||||||||||||
Balance at September 29, 2018 | 18,754 | $ | 27,340 | $ | (11,994 | ) | $ | 743,745 | $ | 759,091 | ||||||||||
Issuance of common stock upon exercise of stock options | 20 | 1,704 | - | - | 1,704 | |||||||||||||||
Foreign currency translation adjustment | - | - | (1,359 | ) | - | (1,359 | ) | |||||||||||||
Reclass from accumulated other comprehensive gain | - | - | (85 | ) | 85 | - | ||||||||||||||
Dividends declared | - | - | - | (9,389 | ) | (9,389 | ) | |||||||||||||
Share-based compensation | - | 972 | - | - | 972 | |||||||||||||||
Net earnings | - | - | - | 17,526 | 17,526 | |||||||||||||||
Balance at December 29, 2018 | 18,774 | 30,016 | (13,438 | ) | 751,967 | 768,545 | ||||||||||||||
Issuance of common stock upon exercise of stock options | 34 | 3,451 | - | - | 3,451 | |||||||||||||||
Issuance of common stock for employee stock purchase plan | 6 | 772 | - | - | 772 | |||||||||||||||
Foreign currency translation adjustment | - | - | 394 | - | 394 | |||||||||||||||
Issuance of common stock under deferred stock plan | 1 | 90 | - | - | 90 | |||||||||||||||
Dividends declared | - | - | - | (9,405 | ) | (9,405 | ) | |||||||||||||
Share-based compensation | - | 914 | - | - | 914 | |||||||||||||||
Repurchase of common stock | - | - | - | - | - | |||||||||||||||
Net earnings | - | - | - | 20,354 | 20,354 | |||||||||||||||
Balance at March 30, 2019 | 18,815 | 35,243 | (13,044 | ) | 762,916 | 785,115 | ||||||||||||||
Issuance of common stock upon exercise of stock options | 15 | 1,499 | - | - | 1,499 | |||||||||||||||
Foreign currency translation adjustment | - | - | 496 | - | 496 | |||||||||||||||
Dividends declared | - | - | - | (9,413 | ) | (9,413 | ) | |||||||||||||
Share-based compensation | - | 1,098 | - | - | 1,098 | |||||||||||||||
Repurchase of common stock | - | - | - | - | - | |||||||||||||||
Net earnings | - | - | - | 30,872 | 30,872 | |||||||||||||||
Balance at June 29, 2019 | 18,830 | $ | 37,840 | $ | (12,548 | ) | $ | 784,375 | $ | 809,667 |
The accompanying notes are an integral part of these statements. |
J & J SNACK FOODS CORP. AND SUBSIDIARIES |
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Three months ended | Nine months ended | |||||||||||||||
December 30, | December 24, | June 27, | June 29, | |||||||||||||
2017 | 2016 | 2020 | 2019 | |||||||||||||
Operating activities: | ||||||||||||||||
Net earnings | $ | 36,249 | $ | 13,540 | $ | 11,721 | $ | 68,752 | ||||||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||||||||||
Depreciation of fixed assets | 11,152 | 8,728 | ||||||||||||||
Depreciation of property, plant and equipment | 37,353 | 33,374 | ||||||||||||||
Amortization of intangibles and deferred costs | 834 | 1,183 | 2,516 | 2,586 | ||||||||||||
Share-based compensation | 953 | 748 | 3,421 | 3,006 | ||||||||||||
Deferred income taxes | (18,265 | ) | (74 | ) | (426 | ) | 690 | |||||||||
Loss on sale of marketable securities | (8 | ) | - | |||||||||||||
Loss on marketable securities | 1,746 | 410 | ||||||||||||||
Plant shutdown impairment costs | 5,072 | - | ||||||||||||||
Other | (317 | ) | 222 | (309 | ) | 350 | ||||||||||
Changes in assets and liabilities net of effects from purchase of companies | ||||||||||||||||
Decrease in accounts receivable | 14,547 | 5,849 | ||||||||||||||
Decrease (increase) in accounts receivable | 24,634 | (14,289 | ) | |||||||||||||
Increase in inventories | (9,933 | ) | (6,727 | ) | (3,751 | ) | (6,257 | ) | ||||||||
Decrease in prepaid expenses | 111 | 5,747 | ||||||||||||||
Decrease in accounts payable and accrued liabilities | (9,216 | ) | (2,816 | ) | ||||||||||||
(Increase) decrease in prepaid expenses | (7,879 | ) | 957 | |||||||||||||
(Decrease) increase in accounts payable and accrued liabilities | (7,478 | ) | 11,584 | |||||||||||||
Net cash provided by operating activities | 26,107 | 26,400 | 66,620 | 101,163 | ||||||||||||
Investing activities: | ||||||||||||||||
Payment for purchases of companies, net of cash acquired | (57,197 | ) | (1,155 | ) | ||||||||||||
Purchases of property, plant and equipment | (14,623 | ) | (11,399 | ) | (47,637 | ) | (42,136 | ) | ||||||||
Purchases of marketable securities | (30,865 | ) | (8,550 | ) | (6,103 | ) | (24,056 | ) | ||||||||
Proceeds from redemption and sales of marketable securities | 19,096 | 475 | 54,125 | 29,721 | ||||||||||||
Proceeds from disposal of property and equipment | 1,046 | 645 | ||||||||||||||
Proceeds from disposal of property, plant and equipment | 2,852 | 1,463 | ||||||||||||||
Other | 27 | (20 | ) | (72 | ) | (212 | ) | |||||||||
Net cash used in investing activities | (25,319 | ) | (18,849 | ) | (54,032 | ) | (36,375 | ) | ||||||||
Financing activities: | ||||||||||||||||
Payments to repurchase common stock | - | - | (8,972 | ) | - | |||||||||||
Proceeds from issuance of stock | 253 | 980 | 6,300 | 7,426 | ||||||||||||
Payments on capitalized lease obligations | (90 | ) | (90 | ) | (272 | ) | (33 | ) | ||||||||
Payment of cash dividend | (7,838 | ) | (7,280 | ) | (31,193 | ) | (27,230 | ) | ||||||||
Net cash used in financing activities | (7,675 | ) | (6,390 | ) | (34,137 | ) | (19,837 | ) | ||||||||
Effect of exchange rate on cash and cash equivalents | (2,986 | ) | (847 | ) | (885 | ) | (333 | ) | ||||||||
Net (decrease)increase in cash and cash equivalents | (9,873 | ) | 314 | |||||||||||||
Net (decrease) increase in cash and cash equivalents | (22,434 | ) | 44,618 | |||||||||||||
Cash and cash equivalents at beginning of period | 90,962 | 140,652 | 192,395 | 111,479 | ||||||||||||
Cash and cash equivalents at end of period | $ | 81,089 | $ | 140,966 | $ | 169,961 | $ | 156,097 |
The accompanying notes are an integral part of these statements. |
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1 | The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form |
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position and the results of operations and cash flows.
The results of operations for the three and nine months ended December 30, 2017 June 27, 2020 and December 24, 2016 June 29, 2019 are not necessarily indicative of results for the full year. Sales of our frozen beverages and frozen juice bars and ices are generally higher in the third and fourth quarters due to warmer weather. Additionally, approximately 2/3 of our sales are to venues and locations that have shut down or sharply curtailed their foodservice operations as a result of COVID-19 resulting in a negative impact on our business beginning in March 2020 which we anticipate will continue to have a negative impact on our business for an undetermined length of time.
Certain prior year financial statement amounts have been reclassified to be consistent with the presentation for the current year.
While we believe that the disclosures presented are adequate to make the information not misleading, it is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes included in the Company’sCompany’s Annual Report on Form 10-K10-K for the fiscal year ended September 30, 2017.28, 2019.
Note 2
Revenue Recognition
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 for 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. We review and update our estimates and related accruals of variable consideration each period based on historical experience. Our recorded liability for allowances, end-user pricing adjustments and trade spending was approximately $15.9 million at June 27, 2020 and $14.8 million at September 28, 2019.
Warranties & Returns
We provide all customers with a standard or assurance type warranty. Either stated or implied, we provide assurance the related products will comply with all agreed-upon specifications and other warranties provided under the law. No services beyond an assurance warranty are provided to our customers.
We do not grant a general right of return. However, customers may return defective or non-conforming products. Customer remedies may include either a cash refund or an exchange of the product. We do not estimate a right of return and related refund liability as returns of our products are rare.
Contract Balances
Our customers are billed for service contracts in advance of performance and therefore we have contract liability on our balance sheet as follows:
(in thousands) | ||||||||||||||||
Three months ended | Nine months ended | |||||||||||||||
June 27, | June 29, | June 27, | June 29, | |||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Beginning Balance | $ | 1,235 | $ | 1,655 | $ | 1,334 | $ | 1,865 | ||||||||
Additions to contract liability | 1,362 | 1,271 | 4,111 | 4,299 | ||||||||||||
Amounts recognized as revenue | (1,311 | ) | (1,499 | ) | (4,159 | ) | (4,737 | ) | ||||||||
Ending Balance | $ | 1,286 | $ | 1,427 | $ | 1,286 | $ | 1,427 |
Disaggregation of Revenue
See Note 9 for disaggregation of our net sales by class of similar product and type of 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 $1,340,000 and $572,000 at June 27, 2020 and September 28, 2019, respectively. Our allowance has increased based on our assessment of collectability considering the impact of COVID-19 on some of our customers.
Note |
|
| Depreciation of equipment and buildings is provided for by the straight-line method over the assets’ estimated useful lives. Amortization of improvements is provided for by the straight-line method over the term of the lease or the assets’ estimated useful lives, whichever is shorter. Licenses and rights, customer relationships and non-compete agreements arising from acquisitions are amortized by the straight-line method over periods ranging from |
Note 4 | Basic earnings per common share (EPS) excludes dilution and is computed by dividing income available to common shareholders by the weighted average common shares outstanding during the period. Diluted EPS takes into consideration the potential dilution that could occur if securities (stock options) or other contracts to issue common stock were exercised and converted into common stock. Our calculation of EPS is as follows: |
Three Months Ended December 30, 2017 | Three Months Ended June 27, 2020 | |||||||||||||||||||||||
Income | Shares | Per Share | Loss | Shares | Per Share | |||||||||||||||||||
(Numerator) | (Denominator) | Amount | (Numerator) | (Denominator) | Amount | |||||||||||||||||||
(in thousands, except per share amounts) | (in thousands, except per share amounts) | |||||||||||||||||||||||
Basic EPS | ||||||||||||||||||||||||
Net Earnings available to common stockholders | $ | 36,249 | 18,666 | $ | 1.94 | |||||||||||||||||||
Net Loss available to common stockholders | $ | (12,647 | ) | 18,888 | $ | (0.67 | ) | |||||||||||||||||
Effect of Dilutive Securities | ||||||||||||||||||||||||
Options | - | 112 | (0.01 | ) | - | - | - | |||||||||||||||||
Diluted EPS | ||||||||||||||||||||||||
Net Earnings available to common stockholders plus assumed conversions | $ | 36,249 | 18,778 | $ | 1.93 | |||||||||||||||||||
Net Loss available to common stockholders plus assumed conversions | $ | (12,647 | ) | 18,888 | $ | (0.67 | ) |
1,000845,977 anti-dilutive shares have been excluded in the computation of EPS for the three months ended December 30, 2017.June 27, 2020.
Three Months Ended December 24, 2016 | ||||||||||||
Income | Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
(in thousands, except per share amounts) | ||||||||||||
Basic EPS | ||||||||||||
Net Earnings available to common stockholders | $ | 13,540 | 18,686 | $ | 0.72 | |||||||
Effect of Dilutive Securities | ||||||||||||
Options | - | 101 | - | |||||||||
Diluted EPS | ||||||||||||
Net Earnings available to common stockholders plus assumed conversions | $ | 13,540 | 18,787 | $ | 0.72 |
Nine Months Ended June 27, 2020 | ||||||||||||
Income | Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
(in thousands, except per share amounts) | ||||||||||||
Basic EPS | ||||||||||||
Net Earnings available to common stockholders | $ | 11,721 | 18,902 | $ | 0.62 | |||||||
Effect of Dilutive Securities | ||||||||||||
Options | - | 134 | - | |||||||||
Diluted EPS | ||||||||||||
Net Earnings available to common stockholders plus assumed conversions | $ | 11,721 | 19,036 | $ | 0.62 |
169,246 anti-dilutive shares have been excluded in the computation of EPS for the nine months ended June 27, 2020
Three Months Ended June 29, 2019 | ||||||||||||
Income | Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
(in thousands, except per share amounts) | ||||||||||||
Basic EPS | ||||||||||||
Net Earnings available to common stockholders | $ | 30,872 | 18,823 | $ | 1.64 | |||||||
Effect of Dilutive Securities | ||||||||||||
Options | - | 124 | (0.01 | ) | ||||||||
Diluted EPS | ||||||||||||
Net Earnings available to common stockholders plus assumed conversions | $ | 30,872 | 18,947 | $ | 1.63 |
163,670 anti-dilutive shares have been excluded in the computation of EPS for the nine months ended June 29, 2019
Nine Months Ended June 29, 2019 | ||||||||||||
Income | Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
(in thousands, except per share amounts) | ||||||||||||
Basic EPS | ||||||||||||
Net Earnings available to common stockholders | $ | 68,752 | 18,794 | $ | 3.66 | |||||||
Effect of Dilutive Securities | ||||||||||||
Options | - | 118 | (0.02 | ) | ||||||||
Diluted EPS | ||||||||||||
Net Earnings available to common stockholders plus assumed conversions | $ | 68,752 | 18,912 | $ | 3.64 |
163,670 anti-dilutive shares have been excluded in the computation of EPS for the nine months ended June 29, 2019
Note 5 | At |
Three months ended | ||||||||||||||||||||||||
December 30, | December 24, | |||||||||||||||||||||||
2017 | 2016 | Three months ended | Nine months ended | |||||||||||||||||||||
(in thousands, except per share amounts) | June 27, | June 29, | June 27, | June 29, | ||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||
Stock Options | $ | 615 | $ | (211 | ) | $ | 890 | $ | 663 | $ | 2,267 | $ | 1,741 | |||||||||||
Stock purchase plan | 200 | 174 | 57 | 187 | 328 | 324 | ||||||||||||||||||
Restricted stock issued to an employee | 1 | 1 | ||||||||||||||||||||||
Stock issued to an outside director | 17 | 17 | 50 | 50 | ||||||||||||||||||||
Total share-based compensation | $ | 816 | $ | (36 | ) | $ | 964 | $ | 867 | $ | 2,645 | $ | 2,115 | |||||||||||
The above compensation is net of tax benefits | $ | 137 | $ | 783 | $ | 70 | $ | 254 | $ | 822 | $ | 937 |
The fair value of each option grant is estimated on the date of grant using the Black-Scholes options-pricing model with the following weighted average assumptions used forfor grants in fiscal 2018 first three2020nine months: expected volatility of 16.8%17.4%; risk-free interest rate of 2.1%0.3%; dividend rate of 1.2%1.8% and expected lives of 5 years.51 months.
During the fiscal year 2018 three2020nine month period, the Company granted 1,500161,682 stock options. The weighted-average grant date fair value of these options was $23.14.$14.40.
During the fiscal year 2017 three2019nine month period, the Company granted 300165,170 stock options. The weighted-average grant date fair value of these options was $15.15.$26.29.
Expected volatility is based on the historical volatility of the price of our common shares over the past 5051 months for 5 year options and 10 years for 10 year options. We use historical information to estimate expected life and forfeitures within the valuation model. The expected term of awards represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Compensation cost is recognized using a straight-line method over the vesting or service period and is net of estimated forfeitures.
Note 6 | 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 |
Additionally, we recognize a liability for income taxes and associated penalties and interest for tax positions taken or expected to be taken in a tax return which are more likely than not to be overturned by taxing authorities (“uncertain tax positions”). We have not recognized a tax benefit in our financial statements for these uncertain tax positions.
The total amount of gross unrecognized tax benefits is $379,000$360,000 and $374,000$414,000 on December 30, 2017 June 27, 2020 and September 30, 2017, 28, 2019, respectively, all of which would impact our effective tax rate over time, if recognized. We recognize interest and penalties related to uncertain tax positions as a part of the provision for income taxes. As of December 30, 2017 June 27, 2020, and September 30, 2017, 28, 2019, respectively, the Company has $244,000$263,000 and $239,000$279,000 of accrued interest and penalties.
In addition to our federal tax return and tax returns for Mexico and Canada, we file tax returns in all states that have a corporate income tax with virtually all open for examination for three to four years.
Net earnings in last year’s nine months benefitted by a reduction of approximately $900,000 in tax as the provision for the current year quarter benefited fromone time repatriation tax as a $20.9 million, or $1.11 per diluted share, gain on the remeasurementresult of deferred tax liabilities and a $2.0 million, or $0.11 per diluted share, reduction in income taxes related primarily to the lower corporate tax rate enacted under the Tax Cuts and JobsJob Act of 2017 was reduced as the amount recorded the year prior was an estimate. Excluding the reduction in December 2017. Net earnings were impacted by a $1.2 million, or $.06 per diluted share,the provision for the one time repatriation tax required under the new tax law. Excluding the deferred tax gain and the one time-time repatriation tax, our effective tax rate decreased to 28.6% from 34.0%was 27.5% in the prior year quarter reflecting the reduction in the federal statutory rate to 21% from 35% for the remaining three quarters of fiscal 2018. The gain on the remeasurement of deferred tax liabilities and the one time repatriation tax are preliminary estimates.
On December 22, 2017, the SEC issued guidance under Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) directing taxpayers to consider the impact of the U.S. legislation as “provisional” when it does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the change in tax law. In accordance with SAB 118, the estimated income tax net benefit of $21.7 million represents our best estimate based on interpretation of the U.S. legislation as we are still accumulating data to finalize the underlying calculations, or in certain cases, the U.S. Treasury is expected to issue further guidance on the application of certain provisions of the U.S. legislation. In accordance with SAB 118, the additional estimated income tax net benefit of $21.7 million is considered provisional and will be finalized before December 22, 2018.last year’s nine months.
Note 7 | In |
In JanuaryJune 2016, the FASB issued guidance which requires an entityto update the methodology used to measure equity investments at fair value with changes in fair value recognized in net income,current expected credit losses (CECL). This guidance applies to use the price that would be received by a seller when measuring the fair value of financial instruments for disclosure purposes, and which eliminates the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instrumentsassets measured at amortized cost, on the balance sheet. Under present guidance, changesincluding loans, held-to-maturity debt securities, net investments in fair value of equity investments are recognized in Stockholders’ Equity.leases, and trade accounts receivable as well as certain off-balance sheet credit exposures, such as loan commitments. This guidance isreplaces the current incurred loss impairment methodology with a methodology to reflect CECL and requires consideration of a broader range of reasonable and supportable information to explain credit loss estimates. The guidance must be adopted using a modified retrospective transition method through a cumulative-effect adjustment to retained earnings/(deficit) in the period of adoption. This guidance will be effective forbeginning in the first quarter of our fiscal year ended September 2019.2021. Early adoption is not permitted. We do not anticipate thatare currently evaluating the adoption ofimpact this new guidance will have a material impact on our consolidated financial statements.
In February 2016, the FASB issued guidance on lease accounting which requires that an entity recognize most leases on its balance sheet. The guidance retains a dual lease accounting model for purposes of income statement recognition, continuing the distinction between what are currently known as “capital” and “operating” leases for lessees. This guidance is effective for our fiscal year ended September 2020. While we continue to evaluate the effect of adopting this guidance on our consolidated financial statements and related disclosures,disclosures.
Note 8 | Inventories consist of the following: |
June 27, | September 28, | |||||||
2020 | 2019 | |||||||
(unaudited) | ||||||||
(in thousands) | ||||||||
Finished goods | $ | 51,456 | $ | 53,225 | ||||
Raw materials | 24,679 | 22,146 | ||||||
Packaging materials | 10,525 | 9,703 | ||||||
Equipment parts and other | 33,904 | 31,091 | ||||||
Total Inventories | $ | 120,564 | $ | 116,165 |
$2.0 million of inventory was written down in the quarter as we expect our operating leases, willconsider it to be subject to the new standard. We will recognize right-of-use assets and operating lease liabilities on our consolidated balance sheets upon adoption, which will increase our total assets and liabilities. We anticipate that the impact of this guidance on our financial statements will be material.unsaleable.
Note |
|
December 30, | September 30, | |||||||
2017 | 2017 | |||||||
(unaudited) | ||||||||
(in thousands) | ||||||||
Finished goods | $ | 51,808 | $ | 45,394 | ||||
Raw materials | 25,291 | 22,682 | ||||||
Packaging materials | 9,765 | 8,833 | ||||||
Equipment parts and other | 26,185 | 26,359 | ||||||
Total Inventories | $ | 113,049 | $ | 103,268 |
| We principally sell our products to the food service and retail supermarket industries. Sales and results of our frozen beverages business are monitored separately from the balance of our food service business because of different distribution and capital requirements. We maintain separate and discrete financial information for the three operating segments mentioned above which is available to our Chief Operating Decision Makers. |
Our three reportable segments are Food Service, Retail Supermarkets and Frozen Beverages. All inter-segment net sales and expenses have been eliminated in computing net sales and operating income. These segments are described below.below.
Food Service
The primary products sold by the food service group are soft pretzels, frozen juice treats and desserts, churros, dough enrobed handheld products and baked goods. Our customers in the food service industry include snack bars and food stands in chain, department and discount stores; malls and shopping centers; fast food outlets; stadiums and sports arenas; leisure andtheme 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, 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, 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 and related products 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.
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 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. Due to a change in management and the reporting of our MARYB’s biscuit operations, which had sales and operating income of $25,316,000 and $1,584,000, respectively, in our 2019 fiscal year, we have reclassified the operations from our Food Service segment to our Retail Supermarket segment, which is reflected in both periods reported. Information regarding the operations in these three reportable segments is as follows:
Three months ended | ||||||||||||||||||||||||
December 30, | December 24, | Three months ended | Nine months ended | |||||||||||||||||||||
2017 | 2016 | June 27, | June 29, | June 27, | June 29, | |||||||||||||||||||
| (unaudited) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
Sales to External Customers: | ||||||||||||||||||||||||
Food Service | ||||||||||||||||||||||||
Soft pretzels | $ | 50,131 | $ | 41,494 | $ | 21,384 | $ | 55,867 | $ | 116,985 | $ | 154,670 | ||||||||||||
Frozen juices and ices | 7,184 | 7,479 | 8,688 | 13,862 | 25,222 | 30,336 | ||||||||||||||||||
Churros | 14,592 | 14,438 | 7,321 | 18,888 | 38,466 | 49,793 | ||||||||||||||||||
Handhelds | 10,252 | 7,479 | 7,448 | 8,550 | 22,084 | 25,339 | ||||||||||||||||||
Bakery | 94,933 | 75,279 | 69,237 | 90,084 | 255,016 | 268,735 | ||||||||||||||||||
Other | 5,172 | 4,128 | 2,543 | 6,105 | 13,628 | 19,576 | ||||||||||||||||||
Total Food Service | $ | 182,264 | $ | 150,297 | $ | 116,621 | $ | 193,356 | $ | 471,401 | $ | 548,449 | ||||||||||||
Retail Supermarket | ||||||||||||||||||||||||
Soft pretzels | $ | 10,512 | $ | 8,944 | $ | 12,716 | $ | 7,294 | $ | 34,874 | $ | 28,309 | ||||||||||||
Frozen juices and ices | 9,727 | 9,851 | 33,322 | 26,515 | 59,279 | 52,179 | ||||||||||||||||||
Biscuits | 8,151 | 5,215 | 21,759 | 19,437 | ||||||||||||||||||||
Handhelds | 3,026 | 3,450 | 3,257 | 3,063 | 9,135 | 8,110 | ||||||||||||||||||
Coupon redemption | (751 | ) | (1,259 | ) | (807 | ) | (962 | ) | (2,216 | ) | (2,163 | ) | ||||||||||||
Other | 562 | 633 | 863 | 642 | 1,668 | 1,341 | ||||||||||||||||||
Total Retail Supermarket | $ | 23,076 | $ | 21,619 | $ | 57,502 | $ | 41,767 | $ | 124,499 | $ | 107,213 | ||||||||||||
Frozen Beverages | ||||||||||||||||||||||||
Beverages | $ | 34,303 | $ | 28,276 | $ | 16,456 | $ | 56,937 | $ | 83,606 | $ | 121,976 | ||||||||||||
Repair and maintenance service | 19,004 | 18,091 | 17,259 | 22,514 | 61,524 | 62,291 | ||||||||||||||||||
Machines sales | 6,313 | 7,039 | ||||||||||||||||||||||
Machines revenue | 6,363 | 11,810 | 27,254 | 33,875 | ||||||||||||||||||||
Other | 250 | 248 | 362 | 317 | 1,218 | 811 | ||||||||||||||||||
Total Frozen Beverages | $ | 59,870 | $ | 53,654 | $ | 40,440 | $ | 91,578 | $ | 173,602 | $ | 218,953 | ||||||||||||
Consolidated Sales | $ | 265,210 | $ | 225,570 | $ | 214,563 | $ | 326,701 | $ | 769,502 | $ | 874,615 | ||||||||||||
Depreciation and Amortization: | ||||||||||||||||||||||||
Food Service | $ | 7,098 | $ | 5,732 | $ | 7,050 | $ | 6,973 | $ | 21,208 | $ | 19,911 | ||||||||||||
Retail Supermarket | 290 | 278 | 468 | 335 | 1,156 | 990 | ||||||||||||||||||
Frozen Beverages | 4,598 | 3,901 | 5,864 | 5,015 | 17,505 | 15,059 | ||||||||||||||||||
Total Depreciation and Amortization | $ | 11,986 | $ | 9,911 | $ | 13,382 | $ | 12,323 | $ | 39,869 | $ | 35,960 | ||||||||||||
Operating Income : | ||||||||||||||||||||||||
Operating (Loss)Income: | ||||||||||||||||||||||||
Food Service | $ | 15,900 | $ | 17,054 | $ | (18,242 | ) | $ | 21,030 | $ | 7,743 | $ | 57,909 | |||||||||||
Retail Supermarket | 2,558 | 1,046 | 7,910 | 3,775 | 14,464 | 9,025 | ||||||||||||||||||
Frozen Beverages | 2,770 | 1,227 | (9,088 | ) | 14,237 | (8,942 | ) | 18,961 | ||||||||||||||||
Total Operating Income | $ | 21,228 | $ | 19,327 | ||||||||||||||||||||
Total Operating (Loss) Income | $ | (19,420 | ) | $ | 39,042 | $ | 13,265 | $ | 85,895 | |||||||||||||||
Capital Expenditures: | ||||||||||||||||||||||||
Food Service | $ | 9,441 | $ | 6,587 | $ | 7,865 | $ | 8,665 | $ | 26,599 | $ | 23,346 | ||||||||||||
Retail Supermarket | - | 82 | 390 | 597 | 1,625 | 1,730 | ||||||||||||||||||
Frozen Beverages | 5,182 | 4,730 | 2,397 | 6,523 | 19,413 | 17,060 | ||||||||||||||||||
Total Capital Expenditures | $ | 14,623 | $ | 11,399 | $ | 10,652 | $ | 15,785 | $ | 47,637 | $ | 42,136 | ||||||||||||
Assets: | ||||||||||||||||||||||||
Food Service | $ | 635,988 | $ | 594,963 | $ | 729,331 | $ | 751,641 | $ | 729,331 | $ | 751,641 | ||||||||||||
Retail Supermarket | 21,531 | 22,128 | 33,766 | 24,825 | 33,766 | 24,825 | ||||||||||||||||||
Frozen Beverages | 207,498 | 177,082 | 294,189 | 219,224 | 294,189 | 219,224 | ||||||||||||||||||
Total Assets | $ | 865,017 | $ | 794,173 | $ | 1,057,286 | $ | 995,690 | $ | 1,057,286 | $ | 995,690 |
Note 10 | Our three reporting units, which are also reportable segments, are Food Service, Retail Supermarkets and Frozen Beverages. |
The carrying amounts of acquired intangible assets for the Food Service, Retail Supermarkets and Frozen Beverage segments as of December 30, 2017 June 27, 2020 and September 30, 2017 28, 2019 are as follows:
December 30, 2017 | September 30, 2017 | June 27, 2020 | September 28, 2019 | |||||||||||||||||||||||||||||
Gross | Gross | Gross | Gross | |||||||||||||||||||||||||||||
Carrying | Accumulated | Carrying | Accumulated | Carrying | Accumulated | Carrying | Accumulated | |||||||||||||||||||||||||
Amount | Amortization | Amount | Amortization | Amount | Amortization | Amount | Amortization | |||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||
FOOD SERVICE | ||||||||||||||||||||||||||||||||
Indefinite lived intangible assets | ||||||||||||||||||||||||||||||||
Trade Names | $ | 16,628 | $ | - | $ | 16,628 | $ | - | ||||||||||||||||||||||||
Trade names | $ | 10,408 | $ | - | $ | 10,408 | $ | - | ||||||||||||||||||||||||
Amortized intangible assets | ||||||||||||||||||||||||||||||||
Non compete agreements | 980 | 302 | 980 | 263 | 670 | 603 | 858 | 665 | ||||||||||||||||||||||||
Customer relationships | 20,510 | 7,011 | 20,510 | 6,476 | 19,737 | 11,247 | 19,900 | 9,954 | ||||||||||||||||||||||||
License and rights | 1,690 | 1,080 | 1,690 | 1,058 | 1,690 | 1,291 | 1,690 | 1,227 | ||||||||||||||||||||||||
TOTAL FOOD SERVICE | $ | 39,808 | $ | 8,393 | $ | 39,808 | $ | 7,797 | $ | 32,505 | $ | 13,141 | $ | 32,856 | $ | 11,846 | ||||||||||||||||
RETAIL SUPERMARKETS | ||||||||||||||||||||||||||||||||
Indefinite lived intangible assets | ||||||||||||||||||||||||||||||||
Trade Names | $ | 6,557 | $ | - | $ | 6,557 | $ | - | ||||||||||||||||||||||||
Trade names | $ | 12,750 | $ | - | $ | 12,750 | $ | - | ||||||||||||||||||||||||
Amortized Intangible Assets | ||||||||||||||||||||||||||||||||
Trade names | 649 | 130 | 649 | 130 | 676 | 487 | 676 | 389 | ||||||||||||||||||||||||
Customer relationships | 7,979 | 3,022 | 7,979 | 2,822 | 7,907 | 4,942 | 7,979 | 4,421 | ||||||||||||||||||||||||
TOTAL RETAIL SUPERMARKETS | $ | 15,185 | $ | 3,152 | $ | 15,185 | $ | 2,952 | $ | 21,333 | $ | 5,429 | $ | 21,405 | $ | 4,810 | ||||||||||||||||
FROZEN BEVERAGES | ||||||||||||||||||||||||||||||||
Indefinite lived intangible assets | ||||||||||||||||||||||||||||||||
Trade Names | $ | 9,315 | $ | - | $ | 9,315 | $ | - | ||||||||||||||||||||||||
Trade names | $ | 9,315 | $ | - | $ | 9,315 | $ | - | ||||||||||||||||||||||||
Distribution rights | 6,900 | - | 6,900 | - | 34,900 | - | 6,900 | - | ||||||||||||||||||||||||
Amortized intangible assets | ||||||||||||||||||||||||||||||||
Customer relationships | 257 | 56 | 257 | 50 | 1,439 | 222 | 737 | 102 | ||||||||||||||||||||||||
Licenses and rights | 1,400 | 811 | 1,400 | 794 | 1,400 | 983 | 1,400 | 933 | ||||||||||||||||||||||||
TOTAL FROZEN BEVERAGES | $ | 17,872 | $ | 867 | $ | 17,872 | $ | 844 | $ | 47,054 | $ | 1,205 | $ | 18,352 | $ | 1,035 | ||||||||||||||||
CONSOLIDATED | $ | 72,865 | $ | 12,412 | $ | 72,865 | $ | 11,593 | $ | 100,892 | $ | 19,775 | $ | 72,613 | $ | 17,691 |
Fully amortized intangible assets have been removed from the June 27, 2020 amounts. Intangible assets of $21,769,000 were added in the frozen beverages segment from the acquisition of ICEE Distributors in the quarter ended December 28, 2019 and $6,933,000 from the acquisition of BAMA ICEE in the quarter ended March 28, 2020.
AmortizedAmortizing intangible assets are being amortized by the straight-line method over periods ranging from 32 to 20 years and amortization expense is reflected throughout operating expenses. In last year’s fiscal year, intangible assets of $6,957,000 were acquired in an ICEE distributor acquisition in our frozen beverage segment, intangible assets of $15,760,000 were acquired in the Hill & Valley acquisition in our food service segment and intangible assets fo $576,000 were acquired in the Labriola Baking acquisition, also in our food service segment. Aggregate amortization expense of intangible assets for the three months ended December 30, 2017 June 27, 2020 and December 24, 2016 June 29, 2019 was $819,000$831,000 and $1,108,000,$836,000, respectively. Aggregate amortization expense of intangible assets for the nine months ended June 27, 2020 and June 29, 2019 was $2,507,000 and $2,521,000, respectively.
Estimated amortization expense for the next five fiscal years is approximately $3,500,000$3,100,000 in 2018, $3,400,0002020, $2,500,000 in 2019, $3,000,000 in 2020, $2,400,000 in 2021, and $2,300,000 in 2022.2022, $2,300,000 in 2023 and $2,000,000 in 2024. The weighted amortization period of the intangible assets is 10.810.7 years.
Goodwill
The carrying amounts of goodwill for the Food Service, Retail Supermarket and Frozen Beverage segments are as follows:
Food | Retail | Frozen |
| |||||||||||||
| Service | Supermarket | Beverages | Total | ||||||||||||
(in thousands) | ||||||||||||||||
Balance at December 30, 2017 | $ | 61,665 | $ | 3,670 | $ | 37,176 | $ | 102,511 | ||||||||
Balance at September 30, 2017 | $ | 61,665 | $ | 3,670 | $ | 37,176 | $ | 102,511 |
Food | Retail | Frozen | ||||||||||||||
Service | Supermarket | Beverages | Total | |||||||||||||
(in thousands) | ||||||||||||||||
Balance at June 27, 2020 | $ | 61,189 | $ | 4,146 | $ | 57,698 | $ | 123,033 | ||||||||
Balance at September 28, 2019 | $ | 61,189 | $ | 4,146 | $ | 37,176 | $ | 102,511 |
In last year’s fiscal year, goodwillGoodwill of $1,236,000$16,973,000 was acquired in an ICEE distributor acquisition in our frozen beverage segment, goodwill of $14,175,000 was acquiredadded in the Hill & Valleyfrozen beverages segment from the acquisition of ICEE Distributors in our food service segment the quarter ended December 28, 2019 and goodwill$3,549,000 from the acquisition of $658,000 was acquiredBAMA ICEE in our Labriola Baking acquisition, also in our food service segment.the quarter ended March 28, 2020. `
Note | We have classified our investment securities as marketable securities held to maturity and available for sale. The FASB defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the FASB has established three levels of inputs that may be used to measure fair value: |
Level 1 | Observable input such as quoted prices in active markets for identical assets or liabilities; |
Level 2 | Observable inputs, other than Level 1 inputs in active markets, that are observable either directly or indirectly; and |
Level 3 | Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions. |
Marketable securities held to maturity and available for sale consist primarily of investments in mutual funds,, preferred stock and corporate bonds. The fair values of mutual funds are based on quoted market prices in active markets and are classified within Level 1 of the fair value hierarchy. The fair values of preferred stock, corporate bonds and certificates of deposit are based on quoted prices for identical or similar instruments in markets that are not active. As a result, preferred stock, corporate bonds and certificates of deposit are classified within Level 2 of the fair value hierarchy.
The amortized cost, unrealized gains and losses, and fair market values of our investment securities held to maturity at December 30, 2017 June 27, 2020 are summarized as follows:
Gross | Gross | Fair | Gross | Gross | Fair | |||||||||||||||||||||||||||
Amortized | Unrealized | Unrealized | Market | Amortized | Unrealized | Unrealized | Market | |||||||||||||||||||||||||
Cost | Gains | Losses | Value | Cost | Gains | Losses | Value | |||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||
Corporate Bonds | $ | 125,591 | $ | 165 | $ | 551 | $ | 125,205 | $ | 86,171 | $ | 1,416 | $ | 75 | $ | 87,512 | ||||||||||||||||
Certificates of Deposit | 5,920 | 8 | - | 5,928 | 960 | 3 | - | 963 | ||||||||||||||||||||||||
Total marketable securities held to maturity | $ | 131,511 | $ | 173 | $ | 551 | $ | 131,133 | $ | 87,131 | $ | 1,419 | $ | 75 | $ | 88,475 |
The amortized cost, unrealized gains and losses, and fair market values of our investment securities available for sale at December 30, 2017 June 27, 2020 are summarized as follows:
Gross | Gross | Fair | Gross | Gross | Fair | |||||||||||||||||||||||||||
Amortized | Unrealized | Unrealized | Market | Amortized | Unrealized | Unrealized | Market | |||||||||||||||||||||||||
Cost | Gains | Losses | Value | Cost | Gains | Losses | Value | |||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||
Mutual Funds | $ | 13,003 | $ | 58 | $ | 237 | $ | 12,824 | $ | 3,588 | $ | - | $ | 786 | $ | 2,802 | ||||||||||||||||
Preferred Stock | 16,791 | 608 | 73 | 17,326 | 11,596 | 90 | 1,256 | 10,430 | ||||||||||||||||||||||||
Total marketable securities available for sale | $ | 29,794 | $ | 666 | $ | 310 | $ | 30,150 | $ | 15,184 | $ | 90 | $ | 2,042 | $ | 13,232 |
The mutual funds seek current income with an emphasis on maintaining low volatility and overall moderate duration. The Fixed-to-Floating Perpetual Preferred Stock generate fixed income to call dates in 2018, 20192020 and 2025 and then income is based on a spread above LIBOR if the securities are not called. The mutual funds and Fixed-to-Floating Perpetual Preferred Stock do not have contractual maturities; however, we classify them as long term assets as it is 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. The corporate bonds generate fixed income to maturity dates in 20172020 through 2021,2023, with $123$75 million maturing within 32 years. Our expectation is that we will hold the corporate bonds to their maturity dates and redeem them at our amortized cost.
The amortized cost, unrealized gains and losses, and fair market values of our investment securities held to maturity at September 30, 2017 28, 2019 are summarized as follows:
Gross | Gross | Fair | ||||||||||||||||||||||||||||||
Gross | Gross | Fair | Amortized | Unrealized | Unrealized | Market | ||||||||||||||||||||||||||
Amortized | Unrealized | Unrealized | Market | Cost | Gains | Losses | Value | |||||||||||||||||||||||||
Cost | Gains | Losses | Value | (in thousands) | ||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||
Corporate Bonds | $ | 114,101 | $ | 424 | $ | 155 | $ | 114,370 | $ | 127,571 | $ | 1,204 | $ | 36 | $ | 128,739 | ||||||||||||||||
Certificates of Deposit | 5,920 | 18 | 1 | 5,937 | 2,880 | 6 | - | 2,886 | ||||||||||||||||||||||||
Total marketable securities held to maturity | $ | 120,021 | $ | 442 | $ | 156 | $ | 120,307 | $ | 130,451 | $ | 1,210 | $ | 36 | $ | 131,625 |
The amortized cost, unrealized gains and losses, and fair market values of our investment securities available for sale at September 30, 2017 28, 2019 are summarized as follows:
Gross | Gross | Fair | Gross | Gross | Fair | |||||||||||||||||||||||||||
Amortized | Unrealized | Unrealized | Market | Amortized | Unrealized | Unrealized | Market | |||||||||||||||||||||||||
Cost | Gains | Losses | Value | Cost | Gains | Losses | Value | |||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||
Mutual Funds | $ | 13,003 | $ | 77 | $ | 240 | $ | 12,840 | $ | 5,549 | $ | - | $ | 495 | $ | 5,054 | ||||||||||||||||
Preferred Stock | 16,791 | 711 | 82 | 17,420 | 14,598 | 266 | 15 | 14,849 | ||||||||||||||||||||||||
Total marketable securities available for sale | $ | 29,794 | $ | 788 | $ | 322 | $ | 30,260 | $ | 20,147 | $ | 266 | $ | 510 | $ | 19,903 |
The amortized cost and fair value of the Company’sCompany’s held to maturity securities by contractual maturity at December 30, 2017 June 27, 2020 and September 30, 2017 28, 2019 are summarized as follows:
September 24, 2011 | December 30, 2017 | September 30, 2017 | ||||||||||||||||||||||||||||||
June 27, 2020 | September 28, 2019 | |||||||||||||||||||||||||||||||
Fair | Fair | Fair | Fair | |||||||||||||||||||||||||||||
Amortized | Market | Amortized | Market | Amortized | Market | Amortized | Market | |||||||||||||||||||||||||
Cost | Value | Cost | Value | Cost | Value | Cost | Value | |||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||
Due in one year or less | $ | 49,445 | $ | 49,444 | $ | 59,113 | $ | 59,194 | $ | 58,268 | $ | 58,920 | $ | 51,091 | $ | 51,325 | ||||||||||||||||
Due after one year through five years | 82,066 | 81,689 | 60,908 | 61,113 | 28,863 | 29,555 | 79,360 | 80,300 | ||||||||||||||||||||||||
Due after five years through ten years | - | - | - | - | - | - | ||||||||||||||||||||||||||
Total held to maturity securities | $ | 131,511 | $ | 131,133 | $ | 120,021 | $ | 120,307 | $ | 87,131 | $ | 88,475 | $ | 130,451 | $ | 131,625 | ||||||||||||||||
Less current portion | 49,445 | 49,444 | 59,113 | 59,194 | 58,268 | 58,920 | 51,091 | 51,325 | ||||||||||||||||||||||||
Long term held to maturity securities | $ | 82,066 | $ | 81,689 | $ | 60,908 | $ | 61,113 | $ | 28,863 | $ | 29,555 | $ | 79,360 | $ | 80,300 |
Proceeds from the redemption and sale of marketable securities were $19,096,000$23,187,000 and $54,125,000 in the three and nine months ended December 30, 2017 June 27, 2020 and $475,000were $6,584,000 and $29,721,000 in the three and nine months ended December 24, 2016, June 29, 2019, respectively. GainsLosses of $7,558$1,746,000 and $410,000 were recorded in the threenine months ended December 30, 2017 June 27, 2020 and no gains orJune 29, 2019, respectively and losses of $126,000 were recorded in the three months ended December 24, 2016. June 29, 2019 and gains of $324,000 were recorded in the three months ended June 27, 2020. Unrealized losses of $118,000 and $385,000 were recorded in the three and nine months ended June 29, 2019, respectively and unrealized losses of $1,708,000 were recorded in the nine months ended June 27, 2020 and unrealized gains of $285,000 were recorded in the three months ended June 27, 2020. We use the specific identification method to determine the cost of securities sold.
Note12 Changes to the components of accumulated other comprehensive loss are as follows:
Three Months ended December 30, 2017 | ||||||||||||
(unaudited) | ||||||||||||
(in thousands) | ||||||||||||
Unrealized Holding | ||||||||||||
Foreign Currency | Gain on | |||||||||||
Translation Adjustments | Marketable Securities | Total | ||||||||||
Beginning Balance | $ | (9,341 | ) | $ | 466 | $ | (8,875 | ) | ||||
Other comprehensive loss before reclassifications | (3,887 | ) | (110 | ) | $ | (3,997 | ) | |||||
Amounts reclassified from accumulated other comprehensive income | - | - | - | |||||||||
Ending Balance | $ | (13,228 | ) | $ | 356 | $ | (12,872 | ) |
Three Months Ended June 27, 2020 | Nine Months Ended June 27, 2020 | |||||||||||||||||||
Three Months ended December 24, 2016 | ||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | ||||||||||||||||||
(in thousands) | (in thousands) | (in thousands) | ||||||||||||||||||
Unrealized Holding | Foreign Currency | Foreign Currency | ||||||||||||||||||
Foreign Currency | Loss on | Translation | Translation | |||||||||||||||||
Translation Adjustments | Marketable Securities | Total | Adjustments | Adjustments | ||||||||||||||||
Beginning Balance | $ | (13,086 | ) | $ | (329 | ) | $ | (13,415 | ) | $ | (16,099 | ) | $ | (12,988 | ) | |||||
Other comprehensive(loss)income before reclassifications | (1,104 | ) | (103 | ) | (1,207 | ) | ||||||||||||||
Amounts reclassified from accumulated other comprehensive income | - | - | - | |||||||||||||||||
Other comprehensive income (loss) before reclassifications | 41 | (3,070 | ) | |||||||||||||||||
Ending Balance | $ | (14,190 | ) | $ | (432 | ) | $ | (14,622 | ) | $ | (16,058 | ) | $ | (16,058 | ) |
Three Months Ended June 29, 2019 | Nine Months Ended June 29, 2019 | |||||||||||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||
Foreign Currency | Unrealized Holding Gain | Foreign Currency | Unrealized Holding Gain | |||||||||||||||||||||
Translation | on Marketable | Translation | on Marketable | |||||||||||||||||||||
Adjustments | Securities | Total | Adjustments | Securities | Total | |||||||||||||||||||
Beginning Balance | $ | (13,044 | ) | $ | - | $ | (13,044 | ) | $ | (12,079 | ) | $ | 85 | $ | (11,994 | ) | ||||||||
Other comprehensive income (loss) before reclassifications | 496 | - | 496 | (469 | ) | - | (469 | ) | ||||||||||||||||
Amounts reclassified from accumulated other comprehensive income | - | - | - | - | (85 | ) | (85 | ) | ||||||||||||||||
Ending Balance | $ | (12,548 | ) | $ | - | $ | (12,548 | ) | $ | (12,548 | ) | $ | - | $ | (12,548 | ) |
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Note 13On May 22, 2017, October 1, 2019, we acquired anthe assets of ICEE distributor doingDistributors LLC, based in Bossier City, Louisiana. ICEE Distributors does business in GeorgiaArkansas, Louisiana and TennesseeTexas with annual sales of approximately $13 million. Sales and operating income of ICEE Distributors were $3.2 million and $1.1 million for approximately $11 million. the three months and were $8.0 million and $2.0 million for the nine months ended June 27, 2020.
On August 16, 2017, February 4, 2020, we acquired Labriola Baking Company, a bakery the assets of breadsBAMA ICEE, based in Birmingham, Alabama does business in Alabama and artisan soft pretzels located in Alsip, IL for approximately $6 million. Labriola Bakery,Georgia with annual sales of approximately $17$3.5 million. Sales and operating income of BAMA ICEE were $636,000 and $205,000 for the three months and were $1.0 million annually,and $281,000 for the nine months ended June 27, 2020.
The preliminary purchase price allocations for the acquisitions are as follows:
(in thousands) | ||||||||||||
ICEE | BAMA | Total | ||||||||||
Distributors | ICEE | |||||||||||
Accounts Receivable, net | $ | 722 | $ | 71 | $ | 793 | ||||||
Inventories | 866 | 77 | 943 | |||||||||
Property, plant & equipment, net | 4,851 | 1,722 | 6,573 | |||||||||
Customer Relationships | 569 | 133 | 702 | |||||||||
Distribution rights | 21,200 | 6,800 | 28,000 | |||||||||
Goodwill | 16,973 | 3,549 | 20,522 | |||||||||
Accounts Payable | (210 | ) | (125 | ) | (335 | ) | ||||||
Purchase Price | $ | 44,970 | $ | 12,227 | $ | 57,197 |
The goodwill recognized is attributable to the assembled workforce of ICEE Distributors and certain other strategic intangible assets that do not meet the requirements for recognition separate and apart from goodwill.
Acquisition costs of $76,000 are included in other general expense for the nine months ended June 27, 2020.
Our unaudited proforma results, giving effect to this acquisition and assuming an acquisition date of September 29, 2018, would have been:
(in thousands) | ||||||||||||||||
Three months ended | Nine months ended | |||||||||||||||
June 27, | June 29, | June 27, | June 29, | |||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Net Sales | $ | 214,763 | $ | 331,839 | $ | 770,302 | $ | 885,584 | ||||||||
Net Earnings | $ | (12,648 | ) | $ | 32,143 | $ | 11,719 | $ | 70,057 |
Note 14 – Leases
General Lease Description
We have operating leases with initial noncancelable lease terms in excess of one year covering the rental of various facilities and equipment. Certain of these leases contain renewal options and some provide options to purchase during the lease term. Our operating leases include leases for real estate for some of our office and manufacturing facilities as well as manufacturing and non-manufacturing equipment used in our business. The remaining lease terms for these operating leases range from 1 month to 13 years.
We have finance leases with initial noncancelable lease terms in excess of one year covering the rental of various equipment. These leases are generally for manufacturing and non-manufacturing equipment used in our business. The remaining lease terms for these finance leases range from 1 year to 6 years.
Significant Assumptions and Judgments
Contract Contains a manufacturer of pre-baked breads, rolls and soft pretzels for retail in-store bakery and foodservice outlets nationwide.Lease
In evaluating our contracts to determine whether a contract is or contains a lease, we considered the following:
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• | Whether we obtain substantially all of the economic benefits from the use of that underlying asset, and we can direct how and for what purpose the asset is used during the term of the contract. |
Allocation of Consideration
In determining how to allocate consideration between lease and non-lease components in a contract that was deemed to contain a lease, we used judgment and consistent application of assumptions to reasonably allocate the consideration.
Options to Extend or Terminate Leases
We have leases which contain options to extend or terminate the leases. On January 8, 2018, Hom/Ade Foods, Inc, a wholly owned subsidiarylease-by-lease basis, we have determined if the extension should be considered reasonably certain to be exercised and thus a right-of-use asset and a lease liability should be recorded.
Discount Rate
The discount rate for leases, if not explicitly stated in the lease, is the incremental borrowing rate, which is the rate of J & J Snack Foods Corp. (the “Company”), issuedinterest that we would have to pay to borrow on a Product Recall Notification for certain products marketedcollateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.
We used the discount rate to calculate the present value of the lease liability at the date of adoption. In the development of the discount rate, we considered our incremental borrowing rate as provided by our lender which was based on cash collateral and credit risk specific to us, and our lease portfolio characteristics.
As of June 27, 2020, the weighted-average discount rate of our operating and finance leases was 3.3% and 3.1%, respectively.
Practical Expedients and Accounting Policy Elections
We elected the package of practical expedients that permits us not to reassess our prior conclusions about lease identification, lease classification and initial direct costs and made an accounting policy election to exclude short-term leases with an initial term of 12 months or less from our Consolidated Balance Sheets.
Amounts Recognized in the Financial Statements
The components of lease expense were as follows:
Three Months Ended | Nine Months Ended | |||||||
June 27, 2020 | June 27, 2020 | |||||||
(in thousands) | (in thousands) | |||||||
Operating lease cost in Cost of goods sold and Operating Expenses | $ | 4,639 | $ | 12,983 | ||||
Finance lease cost: | ||||||||
Amortization of assets in Cost of goods sold and Operating Expenses | 84 | 253 | ||||||
Interest on lease liabilities in Interest expense & other | 7 | 23 | ||||||
Total finance lease cost | 91 | 276 | ||||||
Short-term lease cost in Cost of goods sold and Operating Expenses | - | |||||||
Total net lease cost | $ | 4,730 | $ | 13,259 |
Supplemental balance sheet information related to leases is as follows:
June 27, 2020 | ||||
(in thousands) | ||||
Operating Leases | ||||
Operating lease right-of-use assets | $ | 64,615 | ||
Current operating lease liabilities | $ | 13,913 | ||
Noncurrent operating lease liabilities | 56,570 | |||
Total operating lease liabilities | $ | 70,483 | ||
Finance Leases | ||||
Finance lease right-of-use assets in Property, plant and equipment, net | $ | 789 | ||
Current finance lease liabilities | $ | 329 | ||
Noncurrent finance lease liabilities | 456 | |||
Total finance lease liabilities | $ | 785 |
$3,218,000 of operating lease right of use assets was impaired in our foodservice segment as a result of the pending shutdown of our midwest manufacturing plant. The amount of the impairment was calculated using cash flow projections.
Supplemental cash flow information related to leases is as follows:
Three Months Ended | Nine Months Ended | |||||||
June 27, 2020 | June 27, 2020 | |||||||
(in thousands) | (in thousands) | |||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
Operating cash flows from operating leases | $ | 4,684 | $ | 13,054 | ||||
Operating cash flows from finance leases | $ | 84 | $ | 253 | ||||
Financing cash flows from finance leases | $ | 7 | $ | 23 | ||||
$ | - | |||||||
Supplemental noncash information on lease liabilities arising from obtaining right-of-use assets | $ | 3,105 | $ | 3,105 | ||||
Supplemental noncash information on lease liabilities removed due to purchase of leased asset | $ | - | $ | - |
As of June 27, 2020, the maturities of lease liabilities were as follows:
(in thousands)
| ||||||||
Operating Leases | Finance Leases | |||||||
Three months ending September 26, 2020 | $ | 4,264 | $ | 115 | ||||
2021 | 15,509 | 349 | ||||||
2022 | 13,236 | 156 | ||||||
2023 | 11,373 | 91 | ||||||
2024 | 8,971 | 95 | ||||||
Thereafter | 26,502 | 27 | ||||||
Total minimum payments | $ | 79,856 | $ | 833 | ||||
Less amount representing interest | (9,373 | ) | (48 | ) | ||||
Present value of lease obligations | $ | 70,483 | $ | 785 |
As of June 27, 2020, the weighted-average remaining term of our operating and finance leases was 7.3 years and 4.0 years, respectively.
As previously disclosed in our 2019 Annual Report on Form 10-K and under the name “MARY B’s Biscuits,” which haveprevious lease accounting standard (Topic 840), as of September 28, 2019, future minimum lease payments under noncancelable leases with initial lease terms in excess of one year were as follows:
(in thousands) | ||||||||
Operating Leases | Capital Leases | |||||||
2020 | $ | 14,814 | $ | 339 | ||||
2021 | 12,686 | 349 | ||||||
2022 | 10,491 | 156 | ||||||
2023 | 8,971 | 91 | ||||||
2024 | 6,988 | 95 | ||||||
Thereafter | 25,588 | 27 | ||||||
Total minimum payments | $ | 79,538 | $ | 1,057 |
Note 15 – Subsequent Event
Net Sales for the potentialfirst4 weeks of our fourth quarter ending September 27, 2020 were down approximately 25% from a year ago. Although we cannot project whether our sales will continue to be contaminated with Listeria monocytogenes. The affected products were manufactured by Flowers Foods, Inc. (“Flowers”), anddown at the Company is working in coordination with Flowers andsame rate for the U.S. Food and Drug Administration to effectuate the recall. We believe that Flowers, the manufacturerbalance of the recalled productquarter, this would be a considerable improvement in our business and initiatorwe would expect our results of the recall, is contractually obligatedoperations to indemnify us against all costs relatedbe significantly better in our fourth quarter compared to a recall triggered by defective productour third quarter if sales continue at this rate, although our operating results would be materially less than last year. Approximately 2/3 of our sales are to venues and locations that have shut down or governmental demand. Althoughsharply curtailed their foodservice operations so we are not able to estimate the costs related to the recall presently, we do not expect the costsanticipate COVID-19 will continue to have a materialnegative impact on our financial statements. Additionally,business. As we have $270 million of cash and marketable securities on our balance sheet, we do not expect to have any liquidity issues, nor do we anticipate a material amount of our assets would be reimbursed by Flowers for our costs related to the recall. We anticipate disruption to our product supply and sales going forward. impaired.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Liquidity and Capital Resources
Our current cash and cash equivalents balances, investments and cash expected to be provided by future operations are our primary sources of liquidity. We believe that these sources, along with our borrowing capacity, are sufficient to fund future growth and expansion. See Note 11 to these financial statements for a discussion of our investment securities.
The Company’s Board of Directors declared a regular quarterly cash dividend of $.45$.575 per share of its common stock payable on January 4, 2018,July 7, 2020, to shareholders of record as of the close of business on December 13, 2017.June 15, 2020.
In our fiscal yearthe three months ended September 30, 2017,March 28, 2020, we purchased and retired 142,66565,648 shares of our common stock at a cost of $18,228,763. In the three months ended December 30, 2017 we$8,972,292. We did not purchase and retire any shares.other shares of our common stock in this fiscal year nor did we purchase any shares of our common stock in fiscal year 2019. On August 4, 2017 the Company’s Board of Directors authorized the purchase and retirement of 500,000 shares of the Company’s common stock; 405,110318,858 shares remain to be purchased under this authorization.
In the three months ended December 30, 2017June 27, 2020 and December 24, 2016June 29, 2019, fluctuations in the valuation of the Mexican and Canadian currencies and the resulting translation of the net assets of our Mexican and Canadian subsidiaries caused an decrease of $41,000 in accumulated other comprehensive loss in the 2020 third quarter and a decrease of $496,000 in accumulated other comprehensive loss in the 2019 third quarter. In the nine-month period, fluctuations in the valuation of the Mexican and Canadian currencies and the resulting translation of the net assets of our Mexican and Canadian subsidiaries caused an increase of $3,887,000$3,070,000 in accumulated other comprehensive loss in the 2018 first quarter2020 nine-month period and an increase of $1,104,000$469,000 in accumulated other comprehensive loss in the 2017 first quarter.2019 nine month period.
Our general-purpose bank credit line which expires in November 2021 provides for up to a $50,000,000 revolving credit facility. The agreement contains restrictive covenants and requires commitment fees in accordance with standard banking practice. There were no outstanding balances under this facility at December 30, 2017.June 27, 2020.
Results of OperationsRESULTS OF OPERATIONS
Net sales increased $39,640,000decreased $112,138,000 or 18%34% to $265,210,000$214,563,000 for the three months and decreased $105,113,000 or 12% to $769,502,000 for the nine months ended December 30, 2017June 27, 2020 compared to the three and nine months ended December 24, 2016.June 29, 2019, respectively. Excluding sales from Hill & Valley, Inc., acquiredthe acquisition of ICEE Distributors in January 2017, anOctober 2019 and BAMA ICEE distributor located in the Southeast acquired in June 2017 and Labriola Bakery which was acquired in August 2017,February 2020, sales increased approximately 7%decreased 35% for the quarter.quarter and decreased about 13% for the nine months.
Sales for the last 5 weeks of the third quarter (our fiscal June) improved to being down approximately 24% from a year ago as parts of the economy that impact our operations began to open up. Approximately 2/3 of the Company’s sales are to venues and locations that have shut down or sharply curtailed their foodservice operations, and therefore we anticipate COVID-19 will continue to have a negative impact on our business. As we have $270 million of cash and marketable securities on our balance sheet, up from $267 million at March 28, 2020, we do not expect to have any liquidity issues, nor do we anticipate a material amount of our assets would be impaired.
FOOD SERVICE
Sales to food service customers increased $ 31,967,000decreased $76,735,000 or 21%40% in the firstthird quarter to $182,264,000. Excluding sales of Hill & Valley$116,621,000 and Labriola, sales increased $9,569,000decreased $77,048,000 or 6%14% to $471,401,000 for the first quarter.nine months. Soft pretzel sales to the food service market increased 21%decreased 62% to $50,131,000$21,384,000 in the quarterthree months and about 14% without Labriola sales. In addition24% to Labriola sales, soft pretzel sales increased significantly due to increased distribution to restaurant chains and movie theatres and we had strong sales of our recently introduced BRAUHAUS pretzels.
$116,985,000 in the nine months. Frozen juices and ices sales decreased 4%37% to $7,184,000$8,688,000 in the three months with sales increases and decreases across our customer base.
decreased 17% to $25,222,000 in the nine months. Churro sales to food service customers were up 1%down 61% in the quarter to $14,592,000.
$7,321,000 and were down 23% to $38,466,000 in the nine months. Sales of bakery products increased $19,654,000decreased $20,847,000 or 26%23% in the firstthird quarter and decreased $13,719,000 or 5% to $94,933,000. Excluding sales of Hill & Valley, bakery sales were essentially flat$255,016,000 for the quarter.
nine months. Sales of handhelds increased $2,773,000decreased $1,102,000 or 37%13% in the quarter with all ofand $3,255,000 or 13% in the increase coming from sales to three customers.nine months. Sales of funnel cake increased $911,000decreased 57%, or 23%$3,181,000, to $2,435,000 in the quarter and $5,311,000, or 29%, to $4,794,000$12,997,000 in the nine months. Sales are down across all product lines as we continuemany of the venues and locations where our products are sold have been shut down for some or all of the third quarter due to increase sales to school food service.COVID-19.
Sales of new products in the first twelve months since their introduction were approximately $8$600,000 in this quarter and $4.7 million in this quarter. Price increasesthe nine months.
We had no impact on salesan operating loss in the quarter and net volume increases, including new product sales as defined above and Hill & Valley and Labriola sales, accounted for approximately $32 million of sales in the quarter.
Operating income in our Food Service segment decreased from $17,054,000 to $15,900,000 in the quarter. Hill & Valley contributed $1,384,000of $18,242,000 compared to operating income of $21,030,000 last year and operating income decreased to $7,743,000 from $57,909,000 in the quarter; however,nine months primarily because of lower production and sales volume due to COVID-19. This year’s three months operating loss and nine months operating income inwere impacted by plant shutdown impairment costs of $5.1 million for the balancepending shutdown of one of our food service business was impactedmanufacturing plants. We expect to reduce manufacturing overhead and distribution costs by generally higherabout $7-8 million annually as a result of this plant closure. This year’s quarter and nine months also included approximately $5 million of costs for payrollemployee safety and insurance, added personnel in the selling function, inefficiencies in our recently acquired Labriola production facility (compounded by the integration of products previously manufactured at other facilities), product mix changes and significantly lower volume concentrated in specific facilities, shutdown costs of our Chambersburg, PA production facility and higher ingredients costs. There was no benefit of pricing to offset these higher costs. increased COVID-19 compensation.
RETAIL SUPERMARKETS
Sales of products to retail supermarkets increased $1,457,000$15,735,000 or 7%38% to $23,076,000$57,502,000 in the first quarter.third quarter and increased $17,286,000 or 16% in the nine months. Soft pretzel sales for the firstthird quarter were up 18%74% to $10,512,000 primarily due$12,716,000 and up 23% to sales of AUNTIE ANNE’S soft pretzels under a license agreement entered into in 2017.$34,874,000 for the nine months. Sales of frozen juices and ices decreased $124,000increased $6,807,000 or 1%26% to $9,727,000$33,322,000 in the first quarter.third quarter and increased $7,100,000 or 14% in the nine months. Handheld sales to retail supermarket customers decreased 12%increased 6% to $3,026,000$3,257,000 in the quarter and 13% to $9,135,000 in the nine months. Biscuit sales for the third quarter were up 56% to $8,151,000 and 12% to $21,759,000 for the nine months. Sales were generally higher for all product lines as sales in the year ago periods were impacted by lost volume and placements due the price increases implemented in last year’s first quarter and because of increased sales of this product line continues their long term decline.to supermarkets generally since mid-March 2020 due to COVID-19.
Sales of new products in the firstthird quarter were approximately $1.9 million. Price increases had no impact on sales in$500,000 and were approximately $1.0 million for the quarter and net volume increases, including new product sales as defined above accounted for $1.5 million of sales in the quarter.nine months.
Operating income in our Retail Supermarkets segment was $2,558,000$7,910,000 in this year’s firstthird quarter compared to $1,046,000$3,775,000 in last year’s quarter, a 145% increase. Lower coupon expense of $508,000110% increase and lower media spending of $543,000 along with the 18% increaseincreased to $14,464,000 in soft pretzel sales were the major reasons for the increasethis year’s nine months compared to $9,025,000 in operating income.last year’s nine months primarily due to higher volume.
FROZEN BEVERAGES
FrozenTotal frozen beverage and related productsegment sales increased 12% to $59,870,000decreased 56% in the firstthree months to $40,440,000 and 21% to $173,602,000 for the nine months. Beverage sales were down 71% to $16,456,000 in the quarter and excludingdown 31% to $83,606,000 in the nine months. Excluding sales from the acquisition of the acquired ICEE distributor were up about 10%. Beverage relatedDistributors in October 2019 and BAMA ICEE in February 2020, total frozen beverage segment sales alone were up 21% to $34,303,000decreased 60% in the quarter and were up about 19% withoutdown 25% for the nine months and beverage sales ofdecreased 78% for the acquired ICEE distributor.quarter and 39% for the nine months. Gallon sales were up 15% fordown 72% in the threequarter and down 36% in the nine months with higher sales to movie theatres and across our customer base.exclusive of ICEE Distributors’ gallons. Service revenue increased 5%decreased 23% to $19,004,000$17,259,000 in the firstthird quarter withand was down 1% at $61,524,000 in the nine months. Machines revenue (primarily sales increases and decreases spread throughout our customer base.
Sales of frozen beverage machines, which tend to fluctuate from year to year while following no specific trend,machines) were $6,313,000,$6,363,000, a decrease of 10%. Operating income$5,447,000 in the quarter and $27,254,000, a decrease of $6,621,000, in the nine months, with the decrease due to two significant install projects during the prior fiscal year, as well as the slowdown due to COVID-19. Sales are down across all product lines as many of the venues and locations where our products are sold have been shut down for some or all of the third quarter due to COVID-19.
Our Frozen Beverage segment increased to $2,770,000 in this quarterhad an operating loss of $9,088,000 compared to $1,227,000operating income of $14,237,000 in last year’s quarter and an operating loss of $8,942,000 for the nine months compared to operating income of $18,961,000 last year primarily as a result of significantly higher beverage sales.lower sales volume due to COVID-19. This year’s operating income was also impacted by relocation costs of our ICEE’s headquarters of 2.5 million in the nine months.
CONSOLIDATED
Gross profit as a percentage of sales was 27.63%17.34% in the threethird quarter and 31.02% last year. Gross profit as a percentage of sales was 23.98% in the nine month period this year and 29.21%29.44% last year. About 20% of the grossGross profit percentage decreasedecreased for both periods because of lower volume in the quarter resulted from the lower gross profit percentage of the Hill & Valley business. The balance of the decrease was caused byour food service and frozen beverages segments, higher costs for payroll and insurance, inefficiencies in our recently acquired Labriolarelated to production facility (compounded by the integration of products previously manufactured at other facilities), productdisruptions due to volume mix changes, significantly lower volume concentrated in specific facilities, shutdown costsexpenses related to employee safety and increased COVID-19 compensation and reserves of our Chambersburg, PA production facility and higher ingredients costs. There was no benefit of pricing to offset these higher costs. approximately $1.5 million for inventory.
Total operating expenses increased $5,483,000decreased $5,691,000 in the firstthird quarter butand as a percentage of sales decreasedincreased to 19.6%26.4% from 20.6%19.1% last year. For the nine months, operating expenses decreased $330,000 and as a percentage of sales increased to 22.3% from 19.6% last year. Operating expenses for both periods this year included $5.1 million of plant shutdown impairment costs for the pending shutdown of one of our manufacturing plants. Marketing expenses decreasedincreased to 8.14%10.2% of sales in this year’s quarter from 9.01%8.1% last year primarily because of lower media spendingand were 8.9% in our retail supermarket business and lower marketing expenses of the acquired Hill & Valley and Labriola businesses. Distribution expenses were 7.98% of sales in this year’s quarter and 8.05%nine months compared to 8.0% of sales in last year’s quarter.nine months. Distribution expenses were 9.9% of sales in the third quarter and 7.5% of sales in last year’s quarter and were 9.1% in this year’s nine months compared to 8.1% in last year’s nine months. Administrative expenses were 3.53%3.9% of sales thisin the third quarter compared to 3.59%3.3% of sales last year in the firstthird quarter and were 3.7% in this year’s nine months compared to 3.4% of sales in last year’s nine months. The percentage increases mentioned above were because of the drop in sales (lower denominators) and our inability to reduce expenses in line with the decrease in sales because of fixed costs that do not fluctuate with sales.
Operating income increased $1,901,000 or 10% to $21,228,000
We had an operating loss of $19,420,000 in the first quarter as a resultthree months and operating income of $13,265,000 in the aforementioned items.nine months this year compared to operating income of $39,042,000 and $85,895,000 in last years’ three and nine months, respectively.
Investment income increased by $262,000decreased to $1,300,000 from $1,953,000 in last year’s quarter due primarily to lower interest rates. Investment income decreased to $2,673,000 from $5,775,000 in the first quarter resultingnine month period due to lower interest rates and because of an increase in unrealized losses to $1,708,000 this year from higher amounts invested and slightly higher interest rates.$385,000 last year.
Other income this quarter includesWe had a $520,000 gain on a salenet loss of property.
Net earnings increased $22,709,000, or 168%,$12,647,000 in the current three month period compared to $36,249,000. net earnings of $30,872,000 last year and net earnings decreased $57,031,000, or 83%, to $11,721,000 for the nine month period this year compared to $68,752,000 for the nine month period last year.
Net earnings for the current year quarter benefited from a $20.9 million, or $1.11 per diluted share, gain on the remeasurement of deferred tax liabilities and a $2.0 million, or $0.11 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. Net earnings were impactedlast year’s nine months benefitted by a $1.2 million, or $.06 per diluted share,reduction of approximately $900,000 in tax as the provision for the one time repatriation tax required underas a result of the new tax law.Tax Cuts and Job Act of 2017 was reduced as the amount recorded the year prior was an estimate. Excluding the deferred tax gain andreduction in the provision for the one time repatriation tax, our effective tax rate decreased to 28.6% from 34.0%was 27.5% in the prior year quarter reflecting the reduction in the federal statutory rate to 21% from 35% for the remaining three quarters of fiscal 2018. Lastlast year’s quarter’snine months. Our effective tax rate benefitted from an unusually high tax benefit on share based compensation of $783,000 which compares towas 26.2% in this year’s quarter’s tax benefit of $137,000. We are presently estimating an effective tax rate of 28-29% for the last three quarters of our fiscal year 2018 and 26-27% for our fiscal year 2019.nine months.
There are many factors which can impact our net earnings from year to year and in the long run, among which are the supply and cost of raw materials and labor, insurance costs, factors impacting sales as noted above, the continuing consolidation of our customers, our ability to manage our manufacturing, marketing and distribution activities, our ability to make and integrate acquisitions and changes in tax laws and interest rates.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
There has been no material change in the Company’sCompany’s assessment of its sensitivity to market risk since its presentation set forth, in item 7a. “Quantitative and Qualitative Disclosures About Market Risk,” in its 2017 annual report on Form 10-K filed with the SEC.
Item 4. | Controls and Procedures |
The Chief Executive Officer and the Chief Financial Officer of the Company (its principal executive officer and principal financial officer, respectively) have concluded, based on their evaluation as of December 30, 2017,June 27, 2020, that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
There has been no change in the Company’sCompany’s internal control over financial reporting during the quarter ended December 30, 2017,June 27, 2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 6. | Exhibits |
Exhibit No. | |||
31.1 & | |||
31.2 | |||
99.5 & | |||
99.6 | Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
101.1 | The following financial information from J&J Snack Foods Corp.'s Quarterly Report on Form 10-Q for the quarter ended | ||
| (i) Consolidated Balance Sheets, | ||
| (ii) Consolidated Statements of Earnings, | ||
| (iii) Consolidated Statements of Comprehensive Income, | ||
| (iv) Consolidated Statements of Cash Flows and | ||
| (v) the Notes to the Consolidated Financial Statements | ||
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.1) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
J & J SNACK FOODS CORP. | |||
Dated: July 31, 2020 | By: | /s/ Gerald B. Shreiber | |
Gerald B. Shreiber | |||
Chairman of the Board, | |||
Chief Executive | |||
Officer and Director | |||
(Principal Executive Officer) | |||
| |||
| |||
Dated: | /s/ Dennis G. Moore | ||
Dennis G. Moore, Senior Vice | |||
President, Chief Financial | |||
Officer and Director | |||
(Principal Financial Officer) | |||
(Principal Accounting Officer) |
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