UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the period ended December 30, 2017March 27, 2021
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.
☒ Yes | ☐ No |
X 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 | ☐ | |
Non-accelerated filer | ☐ |
| ||
Smaller reporting company | ☐ | |||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes X No
☐ Yes | ☒ No |
As January 25, 2018At April 23, 2021 there were 18,678,47319,035,968 shares of the Registrant’s Common Stock outstanding.
INDEX
Page | ||
Number | ||
Part I. Financial Information | ||
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Item l. | Consolidated Financial Statements | |
Consolidated Balance Sheets – | 3 | |
Consolidated Statements of Earnings (unaudited) – Three and six months | 4 | |
Consolidated Statements of Comprehensive Income (unaudited) – Three | 5 | |
Consolidated Statements of Changes In Stockholders’ Equity (unaudited) – Three and six months Ended March 27, 2021 and March 28, 2020 | 6 | |
Consolidated Statements of Cash Flows (unaudited) – |
| |
Notes to the Consolidated Financial Statements (unaudited) |
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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) |
December 30, | September 30, | March 27, | ||||||||||||||
2017 | 2017 | 2021 | September 26, | |||||||||||||
(unaudited) | (unaudited) | 2020 | ||||||||||||||
Assets | ||||||||||||||||
Current assets | ||||||||||||||||
Cash and cash equivalents | $ | 81,089 | $ | 90,962 | $ | 238,386 | $ | 195,809 | ||||||||
Marketable securities held to maturity | 49,445 | 59,113 | 21,379 | 51,151 | ||||||||||||
Accounts receivable, net | 109,709 | 124,553 | 137,683 | 126,587 | ||||||||||||
Inventories | 113,049 | 103,268 | 115,590 | 108,923 | ||||||||||||
Prepaid expenses and other | 3,800 | 3,936 | 17,231 | 17,087 | ||||||||||||
Total current assets | 357,092 | 381,832 | 530,269 | 499,557 | ||||||||||||
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 | 337,763 | 330,168 | ||||||||||||
Marketing equipment | 277,236 | 278,860 | 248,461 | 250,914 | ||||||||||||
Transportation equipment | 8,438 | 8,449 | 9,942 | 9,966 | ||||||||||||
Office equipment | 25,574 | 25,302 | 34,186 | 33,878 | ||||||||||||
Improvements | 37,999 | 38,003 | 44,797 | 43,264 | ||||||||||||
Construction in progress | 21,997 | 16,880 | 23,484 | 19,995 | ||||||||||||
Total Property, plant and equipment, at cost | 659,058 | 653,889 | 727,709 | 717,261 | ||||||||||||
Less accumulated depreciation and amortization | 429,217 | 426,308 | 472,012 | 455,645 | ||||||||||||
Property, plant and equipment, net | 229,841 | 227,581 | 255,697 | 261,616 | ||||||||||||
Other assets | ||||||||||||||||
Goodwill | 102,511 | 102,511 | 121,833 | 121,833 | ||||||||||||
Other intangible assets, net | 60,453 | 61,272 | 80,305 | 81,622 | ||||||||||||
Marketable securities held to maturity | 82,066 | 60,908 | 7,580 | 16,927 | ||||||||||||
Marketable securities available for sale | 30,150 | 30,260 | 12,518 | 13,976 | ||||||||||||
Operating lease right-of-use assets | 53,994 | 58,110 | ||||||||||||||
Other | 2,904 | 2,864 | 2,719 | 2,912 | ||||||||||||
Total other assets | 278,084 | 257,815 | 278,949 | 295,380 | ||||||||||||
Total Assets | $ | 865,017 | $ | 867,228 | $ | 1,064,915 | $ | 1,056,553 | ||||||||
Liabilities and Stockholders' Equity | ||||||||||||||||
Current Liabilities | ||||||||||||||||
Current obligations under capital leases | $ | 339 | $ | 340 | ||||||||||||
Current finance lease liabilities | $ | 288 | $ | 349 | ||||||||||||
Accounts payable | 68,033 | 72,729 | 83,460 | 73,135 | ||||||||||||
Accrued insurance liability | 11,215 | 10,558 | 14,136 | 13,039 | ||||||||||||
Accrued liabilities | 10,491 | 7,753 | 7,272 | 7,420 | ||||||||||||
Current operating lease liabilities | 12,978 | 13,173 | ||||||||||||||
Accrued compensation expense | 11,764 | 19,826 | 14,120 | 16,134 | ||||||||||||
Dividends payable | 8,400 | 7,838 | 10,943 | 10,876 | ||||||||||||
Total current liabilities | 110,242 | 119,044 | 143,197 | 134,126 | ||||||||||||
Long-term obligations under capital leases | 815 | 904 | ||||||||||||||
Noncurrent finance lease liabilities | 256 | 368 | ||||||||||||||
Noncurrent operating lease liabilities | 43,609 | 47,688 | ||||||||||||||
Deferred income taxes | 44,462 | 62,705 | 64,449 | 64,413 | ||||||||||||
Other long-term liabilities | 2,117 | 2,253 | 404 | 460 | ||||||||||||
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 | ||||||||||||||
Preferred stock, $1 par value; authorized 10,000,000 shares; none issued | 0 | 0 | ||||||||||||||
Common stock, no par value; authorized, 50,000,000 shares; issued and outstanding 19,034,000 and 18,915,000 respectively | 65,026 | 49,268 | ||||||||||||||
Accumulated other comprehensive loss | (12,872 | ) | (8,875 | ) | (13,839 | ) | (15,587 | ) | ||||||||
Retained Earnings | 701,664 | 673,815 | 761,813 | 775,817 | ||||||||||||
Total stockholders' equity | 707,381 | 682,322 | 813,000 | 809,498 | ||||||||||||
Total Liabilities and Stockholders' Equity | $ | 865,017 | $ | 867,228 | $ | 1,064,915 | $ | 1,056,553 |
The accompanying notes are an integral part of these statements. |
J & J SNACK FOODS CORP. AND SUBSIDIARIES | |
CONSOLIDATED STATEMENTS OF EARNINGS | |
(Unaudited) | |
(in thousands, except per share amounts) |
Three months ended | Six months ended | |||||||||||||||
March 27, | March 28, | March 27, | March 28, | |||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Net Sales | $ | 256,178 | $ | 272,042 | $ | 497,175 | $ | 554,939 | ||||||||
Cost of goods sold | 195,282 | 202,599 | 386,154 | 407,635 | ||||||||||||
Gross Profit | 60,896 | 69,443 | 111,021 | 147,304 | ||||||||||||
Operating expenses | ||||||||||||||||
Marketing | 19,192 | 23,848 | 36,493 | 46,580 | ||||||||||||
Distribution | 25,443 | 24,834 | 48,332 | 48,376 | ||||||||||||
Administrative | 9,216 | 10,174 | 18,656 | 19,792 | ||||||||||||
Other general (income) expense | (185 | ) | (395 | ) | (268 | ) | (129 | ) | ||||||||
Total Operating Expenses | 53,666 | 58,461 | 103,213 | 114,619 | ||||||||||||
Operating Income | 7,230 | 10,982 | 7,808 | 32,685 | ||||||||||||
Other (expense)income | ||||||||||||||||
Investment(loss)income | 579 | (413 | ) | 1,949 | 1,373 | |||||||||||
Interest (expense) & other | 4 | (27 | ) | (11 | ) | (53 | ) | |||||||||
Earnings before income taxes | 7,813 | 10,542 | 9,746 | 34,005 | ||||||||||||
Income taxes | 1,752 | 3,233 | 1,907 | 9,637 | ||||||||||||
NET EARNINGS | $ | 6,061 | $ | 7,309 | $ | 7,839 | $ | 24,368 | ||||||||
Earnings per diluted share | $ | 0.32 | $ | 0.38 | $ | 0.41 | $ | 1.28 | ||||||||
Weighted average number of diluted shares | 19,130 | 19,014 | 19,081 | 19,079 | ||||||||||||
Earnings per basic share | $ | 0.32 | $ | 0.39 | $ | 0.41 | $ | 1.29 | ||||||||
Weighted average number of basic shares | 19,006 | 18,921 | 18,971 | 18,910 |
The accompanying notes are an integral part of these statements. |
J&J SNACK FOODS CORP. AND SUBSIDIARIES | ||||||||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||||||
(Unaudited) | ||||||||
(in thousands) |
Three months ended | Six months ended | |||||||||||||||
March 27, | March 28, | March 27, | March 28, | |||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Net Earnings | $ | 6,061 | $ | 7,309 | $ | 7,839 | $ | 24,368 | ||||||||
Foreign currency translation adjustments | (531 | ) | (3,921 | ) | 1,748 | (3,111 | ) | |||||||||
Total Other Comprehensive (Loss) income , net of tax | (531 | ) | (3,921 | ) | 1,748 | (3,111 | ) | |||||||||
Comprehensive Income | $ | 5,530 | $ | 3,388 | $ | 9,587 | $ | 21,257 |
The accompanying notes are an integral part of these statements. |
J & J Snack Foods Corp. and Subsidiaries |
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY |
(in thousands) |
Accumulated | ||||||||||||||||||||
Other | ||||||||||||||||||||
Common Stock | Comprehensive | Retained | ||||||||||||||||||
Shares | Amount | Loss | Earnings | Total | ||||||||||||||||
Balance as September 26, 2020 | 18,915 | $ | 49,268 | $ | (15,587 | ) | $ | 775,817 | $ | 809,498 | ||||||||||
Issuance of common stock upon exercise of stock options | 41 | 4,390 | 0 | 0 | 4,390 | |||||||||||||||
Foreign currency translation adjustment | - | 0 | 2,279 | 0 | 2,279 | |||||||||||||||
Dividends declared | - | 0 | 0 | (10,900 | ) | (10,900 | ) | |||||||||||||
Share-based compensation | - | 1,244 | 0 | 0 | 1,244 | |||||||||||||||
Net earnings | - | 0 | 0 | 1,778 | 1,778 | |||||||||||||||
Balance at December 26, 2020 | 18,956 | $ | 54,902 | $ | (13,308 | ) | $ | 766,695 | $ | 808,289 | ||||||||||
Issuance of common stock upon exercise of stock options | 72 | 8,384 | 0 | 0 | 8,384 | |||||||||||||||
Issuance of common stock for employee stock purchase plan | 6 | 714 | 0 | 0 | 714 | |||||||||||||||
Foreign currency translation adjustment | - | 0 | (531 | ) | 0 | (531 | ) | |||||||||||||
Dividends declared | - | 0 | 0 | (10,943 | ) | (10,943 | ) | |||||||||||||
Share-based compensation | - | 1,026 | 0 | 0 | 1,026 | |||||||||||||||
Net earnings | - | 0 | 0 | 6,061 | 6,061 | |||||||||||||||
Balance at March 27, 2021 | 19,034 | $ | 65,026 | $ | (13,839 | ) | $ | 761,813 | $ | 813,000 |
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 | 0 | 0 | 468 | |||||||||||||||
Foreign currency translation adjustment | - | 0 | 810 | 0 | 810 | |||||||||||||||
Dividends declared | - | 0 | 0 | (10,867 | ) | (10,867 | ) | |||||||||||||
Share-based compensation | - | 1,299 | 0 | 0 | 1,299 | |||||||||||||||
Net earnings | - | 0 | 0 | 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 | 0 | 0 | 5,049 | |||||||||||||||
Issuance of common stock for employee stock purchase plan | 6 | 783 | 0 | 0 | 783 | |||||||||||||||
Foreign currency translation adjustment | - | 0 | (3,921 | ) | 0 | (3,921 | ) | |||||||||||||
Issuance of common stock under deferred stock plan | 1 | 90 | 0 | 0 | 90 | |||||||||||||||
Dividends declared | - | 0 | 0 | (10,878 | ) | (10,878 | ) | |||||||||||||
Share-based compensation | - | 1,088 | 0 | 0 | 1,088 | |||||||||||||||
Repurchase of common stock | (66 | ) | (8,972 | ) | 0 | 0 | (8,972 | ) | ||||||||||||
Net earnings | - | 0 | 0 | 7,309 | 7,309 | |||||||||||||||
Balance at March 28, 2020 | 18,888 | $ | 45,549 | $ | (16,099 | ) | $ | 803,618 | $ | 833,068 |
The accompanying notes are an integral part of these statements. |
J & J SNACK FOODS CORP. AND SUBSIDIARIES | |||
CONSOLIDATED STATEMENTS OF | |||
(Unaudited) (in thousands) | |||
|
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 |
Six Months Ended | ||||||||
March 27, | March 28, | |||||||
2021 | 2020 | |||||||
Operating activities: | ||||||||
Net earnings | $ | 7,839 | $ | 24,368 | ||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||
Depreciation of fixed assets | 24,253 | 24,810 | ||||||
Amortization of intangibles and deferred costs | 1,457 | 1,677 | ||||||
Share-based compensation | 2,270 | 2,432 | ||||||
Deferred income taxes | (4 | ) | (298 | ) | ||||
(Gain) loss on marketable securities | (768 | ) | 2,070 | |||||
Other | (163 | ) | (286 | ) | ||||
Changes in assets and liabilities net of effects from purchase of companies | ||||||||
(Increase) decrease in accounts receivable | (10,884 | ) | 6,343 | |||||
Increase in inventories | (6,432 | ) | (11,328 | ) | ||||
Increase in prepaid expenses | (118 | ) | (1,598 | ) | ||||
Increase (decrease) in accounts payable and accrued liabilities | 9,331 | (5,920 | ) | |||||
Net cash provided by operating activities | 26,781 | 42,270 | ||||||
Investing activities: | ||||||||
Payments for purchases of companies, net of cash acquired | 0 | (57,197 | ) | |||||
Purchases of property, plant and equipment | (18,829 | ) | (36,985 | ) | ||||
Purchases of marketable securities | 0 | (6,103 | ) | |||||
Proceeds from redemption and sales of marketable securities | 41,337 | 30,938 | ||||||
Proceeds from disposal of property and equipment | 1,262 | 1,853 | ||||||
Other | 18 | (63 | ) | |||||
Net cash provided by (used in) investing activities | 23,788 | (67,557 | ) | |||||
Financing activities: | ||||||||
Payments to repurchase common stock | 0 | (8,972 | ) | |||||
Proceeds from issuance of stock | 13,582 | 6,300 | ||||||
Payments on capitalized lease obligations | (173 | ) | (168 | ) | ||||
Payment of cash dividend | (21,776 | ) | (20,314 | ) | ||||
Net cash used in financing activities | (8,367 | ) | (23,154 | ) | ||||
Effect of exchange rate on cash and cash equivalents | 375 | (985 | ) | |||||
Net increase (decrease) in cash and cash equivalents | 42,577 | (49,426 | ) | |||||
Cash and cash equivalents at beginning of period | 195,809 | 192,395 | ||||||
Cash and cash equivalents at end of period | $ | 238,386 | $ | 142,969 |
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The accompanying notes are an integral part of these statements. |
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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 |
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|
Three months ended | ||||||||
December 30, | December 24, | |||||||
2017 | 2016 | |||||||
Operating activities: | ||||||||
Net earnings | $ | 36,249 | $ | 13,540 | ||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||
Depreciation of fixed assets | 11,152 | 8,728 | ||||||
Amortization of intangibles and deferred costs | 834 | 1,183 | ||||||
Share-based compensation | 953 | 748 | ||||||
Deferred income taxes | (18,265 | ) | (74 | ) | ||||
Loss on sale of marketable securities | (8 | ) | - | |||||
Other | (317 | ) | 222 | |||||
Changes in assets and liabilities net of effects from purchase of companies | ||||||||
Decrease in accounts receivable | 14,547 | 5,849 | ||||||
Increase in inventories | (9,933 | ) | (6,727 | ) | ||||
Decrease in prepaid expenses | 111 | 5,747 | ||||||
Decrease in accounts payable and accrued liabilities | (9,216 | ) | (2,816 | ) | ||||
Net cash provided by operating activities | 26,107 | 26,400 | ||||||
Investing activities: | ||||||||
Purchases of property, plant and equipment | (14,623 | ) | (11,399 | ) | ||||
Purchases of marketable securities | (30,865 | ) | (8,550 | ) | ||||
Proceeds from redemption and sales of marketable securities | 19,096 | 475 | ||||||
Proceeds from disposal of property and equipment | 1,046 | 645 | ||||||
Other | 27 | (20 | ) | |||||
Net cash used in investing activities | (25,319 | ) | (18,849 | ) | ||||
Financing activities: | ||||||||
Payments to repurchase common stock | - | - | ||||||
Proceeds from issuance of stock | 253 | 980 | ||||||
Payments on capitalized lease obligations | (90 | ) | (90 | ) | ||||
Payment of cash dividend | (7,838 | ) | (7,280 | ) | ||||
Net cash used in financing activities | (7,675 | ) | (6,390 | ) | ||||
Effect of exchange rate on cash and cash equivalents | (2,986 | ) | (847 | ) | ||||
Net (decrease)increase in cash and cash equivalents | (9,873 | ) | 314 | |||||
Cash and cash equivalents at beginning of period | 90,962 | 140,652 | ||||||
Cash and cash equivalents at end of period | $ | 81,089 | $ | 140,966 |
|
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1 | The accompanying unaudited |
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 six months ended March 27, 2021 and March 28, 2020 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. Also, 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. Capacity at the venues started to improve towards the end of the second quarter, but the extent of future impacts on our business from COVID-19 is dependent on developments to control the virus which is still uncertain at this point in time. |
While we believe that the disclosures presented are adequate to make the information not misleading, we suggest that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 26, 2020. |
Note 2
The results of operations for the three months ended December 30, 2017 and December 24, 2016 are not necessarily indicative of results for the full year. Sales of our frozen beverages and frozen juice bars and ices are generally higher in the third and fourth quarters due to warmer weather.
While we believe that the disclosures presented are adequate to make the information not misleading, it is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2017.Revenue Recognition
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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 liabilities 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 |
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. |
Warranties & Returns |
We provide |
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 |
(in thousands) | ||||||||||||||||
Three months ended | Six months ended | |||||||||||||||
March 27, | March 28, | March 27, | March 28, | |||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Beginning Balance | $ | 1,716 | $ | 1,094 | $ | 1,327 | $ | 1,334 | ||||||||
Additions to contract liability | $ | 1,201 | 1,474 | 2,945 | 2,749 | |||||||||||
Amounts recognized as revenue | $ | (1,827 | ) | (1,333 | ) | (3,182 | ) | (2,848 | ) | |||||||
Ending Balance | $ | 1,090 | $ | 1,235 | $ | 1,090 | $ | 1,235 |
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. On September 27, 2020, the Company adopted guidance issued by the FASB in ASU 2016-13,Measurement of Credit Losses on Financial Instruments, which requires companies to recognize an allowance that reflects a current estimate of credit losses expected to be incurred over the life of the asset. Adoption of this new guidance did not have a material impact on the consolidated financial statements. The Company continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses. The allowance for doubtful accounts considers a number of factors including the age of receivable balances, the history of losses, expectations of future credit losses and the customers’ ability to pay off obligations. The allowance for doubtful receivables was $1,381,000 and $1,388,000 on March 27, 2021 and September 26, 2020, respectively.
Note 3 | Depreciation of equipment and buildings is provided for by the straight-line method over the assets’ estimated useful lives. Amortization of improvements is provided for by the straight-line method over the term of the lease or the assets’ estimated useful lives, whichever is shorter. Licenses and rights, customer relationships and non-compete agreements arising from acquisitions are amortized by the straight-line method over periods ranging from |
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 March 27, 2021 | |||||||||||||||||||||||
Income | Shares | Per Share | Income | 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 | $ | 6,061 | 19,006 | $ | 0.32 | ||||||||||||||
Effect of Dilutive Securities | ||||||||||||||||||||||||
Options | - | 112 | (0.01 | ) | 0 | 124 | 0 | |||||||||||||||||
Diluted EPS | ||||||||||||||||||||||||
Net Earnings available to common stockholders plus assumed conversions | $ | 36,249 | 18,778 | $ | 1.93 | $ | 6,061 | 19,130 | $ | 0.32 |
1,000163,072 anti-dilutive shares have been excluded in the computation of EPS for the three months ended December 30, 2017.March 27, 2021
Six Months Ended March 27, 2021 | ||||||||||||
Income | Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
(in thousands, except per share amounts) | ||||||||||||
Basic EPS | ||||||||||||
Net Earnings available to common stockholders | $ | 7,839 | 18,971 | $ | 0.41 | |||||||
Effect of Dilutive Securities | ||||||||||||
Options | 0 | 110 | 0 | |||||||||
Diluted EPS | ||||||||||||
Net Earnings available to common stockholders plus assumed conversions | $ | 7,839 | 19,081 | $ | 0.41 |
184,672 anti-dilutive shares have been excluded in the computation of EPS for the six months ended March 27, 2021
Three Months Ended March 28, 2020 | ||||||||||||
Income | Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
(in thousands, except per share amounts) | ||||||||||||
Basic EPS | ||||||||||||
Net Earnings available to common stockholders | $ | 7,309 | 18,921 | $ | 0.39 | |||||||
Effect of Dilutive Securities | ||||||||||||
Options | 0 | 93 | (0.01 | ) | ||||||||
Diluted EPS | ||||||||||||
Net Earnings available to common stockholders plus assumed conversions | $ | 7,309 | 19,014 | $ | 0.38 |
180,258 anti-dilutive shares have been excluded in the computation of EPS for the three months ended March 28, 2020
Six Months Ended March 28, 2020 | ||||||||||||
Income | Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
(in thousands, except per share amounts) | ||||||||||||
Basic EPS | ||||||||||||
Net Earnings available to common stockholders | $ | 24,368 | 18,910 | $ | 1.29 | |||||||
Effect of Dilutive Securities | ||||||||||||
Options | 0 | 169 | (0.01 | ) | ||||||||
Diluted EPS | ||||||||||||
Net Earnings available to common stockholders plus assumed conversions | $ | 24,368 | 19,079 | $ | 1.28 |
180,258 anti-dilutive shares have been excluded in the computation of EPS for the six months ended March 28, 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 |
Note 5 | At |
Three months ended | ||||||||||||||||||||||||
December 30, | December 24, | |||||||||||||||||||||||
2017 | 2016 | Three months ended | Six months ended | |||||||||||||||||||||
(in thousands, except per share amounts) | March 27, | March 28, | March 27, | March 28, | ||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||
Stock Options | $ | 615 | $ | (211 | ) | $ | 447 | $ | 412 | $ | 993 | $ | 1,377 | |||||||||||
Stock purchase plan | 200 | 174 | 64 | 69 | 342 | 271 | ||||||||||||||||||
Stock issued to an outside director | 22 | 33 | 22 | 33 | ||||||||||||||||||||
Restricted stock issued to an employee | 1 | 1 | 47 | 0 | 47 | 0 | ||||||||||||||||||
Total share-based compensation | $ | 816 | $ | (36 | ) | $ | 580 | $ | 514 | $ | 1,404 | $ | 1,681 | |||||||||||
The above compensation is net of tax benefits | $ | 137 | $ | 783 | $ | 446 | $ | 620 | $ | 866 | $ | 751 |
The fair value of each option grant is estimated on the date of grant using the Black-Scholes options-pricing model with the following weighted average assumptions used for grants in fiscal 2018 first three months: expected volatility of 16.8%; risk-free interest rate of 2.1%; dividend rate of 1.2% and expected lives of 5 years.
During the fiscal year 2018 three month period, the Company granted 1,500 stock options. The weighted-average grant date fair value of these options was $23.14.
During the fiscal year 2017 three month period, the Company granted 300 stock options. The weighted-average grant date fair value of these options was $15.15.
Expected volatility is based on the historical volatility of the price of our common shares over the past 50 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.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes options-pricing model with the following weighted average assumptions used for grants in fiscal 2021six months: expected volatility of 25.8%; risk-free interest rate of 0.5%; dividend rate of 1.5% and expected lives of 51 months. |
During the fiscal year 2021six-month period, the Company granted 300 stock options. The weighted-average grant date fair value of these options was $29.54. |
During the fiscal year 2020six-month period, the Company granted 1,300 stock options. The weighted-average grant date fair value of these options was $24.67. |
Expected volatility is based on the historical volatility of the price of our common shares over the past 51 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 $343,000 and $360,000 on March 27, 2021 and September 26, 2020, 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 March 27, 2021, and September 26, 2020, the Company has $267,000 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. |
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”)
Our effective tax rate for the six months ended March 27, 2021 was 20%, primarily due to a $866,000 tax benefit related to share-based compensation. Our effective tax rate for the six months ended March 28, 2020 was 28%.
|
Note 7 | In |
The Company adopted this guidance in the |
Note 8 | Inventories consist of the |
In January 2016, the FASB issued guidance which requires an entity to measure equity investments at fair value with changes in fair value recognized in net income, 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 instruments measured at amortized cost on the balance sheet. Under present guidance, changes in fair value of equity investments are recognized in Stockholders’ Equity. This guidance is effective for our fiscal year ended September 2019. Early adoption is not permitted. We do not anticipate that the adoption of 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, we expect our operating leases, will 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.
March 27, | September 26, | |||||||
2021 | 2020 | |||||||
(unaudited) | ||||||||
(in thousands) | ||||||||
Finished goods | $ | 41,803 | $ | 40,184 | ||||
Raw materials | 28,066 | 24,550 | ||||||
Packaging materials | 12,069 | 10,545 | ||||||
Equipment parts and other | 33,652 | 33,644 | ||||||
Total Inventories | $ | 115,590 | $ | 108,923 |
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.
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. Information regarding the operations in these three reportable segments is as follows:
Three months ended | ||||||||
December 30, | December 24, | |||||||
2017 | 2016 | |||||||
| (unaudited) | |||||||
| (in thousands) | |||||||
Sales to External Customers: | ||||||||
Food Service | ||||||||
Soft pretzels | $ | 50,131 | $ | 41,494 | ||||
Frozen juices and ices | 7,184 | 7,479 | ||||||
Churros | 14,592 | 14,438 | ||||||
Handhelds | 10,252 | 7,479 | ||||||
Bakery | 94,933 | 75,279 | ||||||
Other | 5,172 | 4,128 | ||||||
Total Food Service | $ | 182,264 | $ | 150,297 | ||||
Retail Supermarket | ||||||||
Soft pretzels | $ | 10,512 | $ | 8,944 | ||||
Frozen juices and ices | 9,727 | 9,851 | ||||||
Handhelds | 3,026 | 3,450 | ||||||
Coupon redemption | (751 | ) | (1,259 | ) | ||||
Other | 562 | 633 | ||||||
Total Retail Supermarket | $ | 23,076 | $ | 21,619 | ||||
Frozen Beverages | ||||||||
Beverages | $ | 34,303 | $ | 28,276 | ||||
Repair and maintenance service | 19,004 | 18,091 | ||||||
Machines sales | 6,313 | 7,039 | ||||||
Other | 250 | 248 | ||||||
Total Frozen Beverages | $ | 59,870 | $ | 53,654 | ||||
Consolidated Sales | $ | 265,210 | $ | 225,570 | ||||
Depreciation and Amortization: | ||||||||
Food Service | $ | 7,098 | $ | 5,732 | ||||
Retail Supermarket | 290 | 278 | ||||||
Frozen Beverages | 4,598 | 3,901 | ||||||
Total Depreciation and Amortization | $ | 11,986 | $ | 9,911 | ||||
Operating Income : | ||||||||
Food Service | $ | 15,900 | $ | 17,054 | ||||
Retail Supermarket | 2,558 | 1,046 | ||||||
Frozen Beverages | 2,770 | 1,227 | ||||||
Total Operating Income | $ | 21,228 | $ | 19,327 | ||||
Capital Expenditures: | ||||||||
Food Service | $ | 9,441 | $ | 6,587 | ||||
Retail Supermarket | - | 82 | ||||||
Frozen Beverages | 5,182 | 4,730 | ||||||
Total Capital Expenditures | $ | 14,623 | $ | 11,399 | ||||
Assets: | ||||||||
Food Service | $ | 635,988 | $ | 594,963 | ||||
Retail Supermarket | 21,531 | 22,128 | ||||||
Frozen Beverages | 207,498 | 177,082 | ||||||
Total Assets | $ | 865,017 | $ | 794,173 |
| Our three |
The carrying amounts of acquired intangible assets for the Food Service, Retail Supermarkets and Frozen Beverage segments as of December 30, 2017 and September 30, 2017 are as follows:
December 30, 2017 | September 30, 2017 | |||||||||||||||
Gross | Gross | |||||||||||||||
Carrying | Accumulated | Carrying | Accumulated | |||||||||||||
Amount | Amortization | Amount | Amortization | |||||||||||||
(in thousands) | ||||||||||||||||
FOOD SERVICE | ||||||||||||||||
Indefinite lived intangible assets | ||||||||||||||||
Trade Names | $ | 16,628 | $ | - | $ | 16,628 | $ | - | ||||||||
Amortized intangible assets | ||||||||||||||||
Non compete agreements | 980 | 302 | 980 | 263 | ||||||||||||
Customer relationships | 20,510 | 7,011 | 20,510 | 6,476 | ||||||||||||
License and rights | 1,690 | 1,080 | 1,690 | 1,058 | ||||||||||||
TOTAL FOOD SERVICE | $ | 39,808 | $ | 8,393 | $ | 39,808 | $ | 7,797 | ||||||||
RETAIL SUPERMARKETS | ||||||||||||||||
Indefinite lived intangible assets | ||||||||||||||||
Trade Names | $ | 6,557 | $ | - | $ | 6,557 | $ | - | ||||||||
Amortized Intangible Assets | ||||||||||||||||
Trade names | 649 | 130 | 649 | 130 | ||||||||||||
Customer relationships | 7,979 | 3,022 | 7,979 | 2,822 | ||||||||||||
TOTAL RETAIL SUPERMARKETS | $ | 15,185 | $ | 3,152 | $ | 15,185 | $ | 2,952 | ||||||||
FROZEN BEVERAGES | ||||||||||||||||
Indefinite lived intangible assets | ||||||||||||||||
Trade Names | $ | 9,315 | $ | - | $ | 9,315 | $ | - | ||||||||
Distribution rights | 6,900 | - | 6,900 | - | ||||||||||||
Amortized intangible assets | ||||||||||||||||
Customer relationships | 257 | 56 | 257 | 50 | ||||||||||||
Licenses and rights | 1,400 | 811 | 1,400 | 794 | ||||||||||||
TOTAL FROZEN BEVERAGES | $ | 17,872 | $ | 867 | $ | 17,872 | $ | 844 | ||||||||
CONSOLIDATED | $ | 72,865 | $ | 12,412 | $ | 72,865 | $ | 11,593 |
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. Information regarding the operations in these three reportable segments is as follows: |
Three months ended | Six months ended | |||||||||||||||
March 27, | March 28, | March 27, | March 28, | |||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Sales to External Customers: | ||||||||||||||||
Food Service | ||||||||||||||||
Soft pretzels | $ | 36,776 | $ | 45,660 | $ | 69,463 | $ | 95,601 | ||||||||
Frozen juices and ices | 10,590 | 9,491 | 16,885 | 16,534 | ||||||||||||
Churros | 14,720 | 14,754 | 26,262 | 31,145 | ||||||||||||
Handhelds | 19,992 | 7,447 | 37,603 | 14,636 | ||||||||||||
Bakery | 82,910 | 89,407 | 171,874 | 185,779 | ||||||||||||
Other | 4,336 | 4,573 | 7,662 | 11,085 | ||||||||||||
Total Food Service | $ | 169,324 | $ | 171,332 | $ | 329,749 | $ | 354,780 | ||||||||
Retail Supermarket | ||||||||||||||||
Soft pretzels | $ | 15,789 | $ | 12,332 | $ | 29,677 | $ | 22,158 | ||||||||
Frozen juices and ices | 19,386 | 15,864 | 34,702 | 25,957 | ||||||||||||
Biscuits | 6,495 | 6,630 | 14,155 | 13,608 | ||||||||||||
Handhelds | 2,243 | 3,117 | 5,023 | 5,878 | ||||||||||||
Coupon redemption | (608 | ) | (866 | ) | (1,683 | ) | (1,409 | ) | ||||||||
Other | 601 | 494 | 1,126 | 805 | ||||||||||||
Total Retail Supermarket | $ | 43,906 | $ | 37,571 | $ | 83,000 | $ | 66,997 | ||||||||
Frozen Beverages | ||||||||||||||||
Beverages | $ | 18,529 | $ | 31,895 | $ | 34,384 | $ | 67,150 | ||||||||
Repair and maintenance service | 18,218 | 21,779 | 37,114 | 44,265 | ||||||||||||
Machines revenue | 5,663 | 8,910 | 12,152 | 20,891 | ||||||||||||
Other | 538 | 555 | 776 | 856 | ||||||||||||
Total Frozen Beverages | $ | 42,948 | $ | 63,139 | $ | 84,426 | $ | 133,162 | ||||||||
Consolidated Sales | $ | 256,178 | $ | 272,042 | $ | 497,175 | $ | 554,939 | ||||||||
Depreciation and Amortization: | ||||||||||||||||
Food Service | $ | 7,116 | $ | 7,240 | $ | 13,902 | $ | 14,158 | ||||||||
Retail Supermarket | 384 | 329 | 770 | 688 | ||||||||||||
Frozen Beverages | 5,648 | 6,188 | 11,424 | 11,641 | ||||||||||||
Total Depreciation and Amortization | $ | 13,148 | $ | 13,757 | $ | 26,096 | $ | 26,487 | ||||||||
Operating Income : | ||||||||||||||||
Food Service | $ | 6,055 | $ | 7,951 | $ | 12,235 | $ | 25,985 | ||||||||
Retail Supermarket | 6,364 | 4,337 | 11,087 | 6,554 | ||||||||||||
Frozen Beverages | (5,189 | ) | (1,306 | ) | (15,514 | ) | 146 | |||||||||
Total Operating Income | $ | 7,230 | $ | 10,982 | $ | 7,808 | $ | 32,685 | ||||||||
Capital Expenditures: | ||||||||||||||||
Food Service | $ | 7,246 | $ | 10,331 | $ | 15,532 | $ | 18,734 | ||||||||
Retail Supermarket | 80 | 275 | 101 | 1,235 | ||||||||||||
Frozen Beverages | 1,827 | 8,774 | 3,196 | 17,016 | ||||||||||||
Total Capital Expenditures | $ | 9,153 | $ | 19,380 | $ | 18,829 | $ | 36,985 | ||||||||
Assets: | ||||||||||||||||
Food Service | $ | 760,557 | $ | 740,318 | $ | 760,557 | $ | 740,318 | ||||||||
Retail Supermarket | 33,395 | 31,636 | 33,395 | 31,636 | ||||||||||||
Frozen Beverages | 270,963 | 305,983 | 270,963 | 305,983 | ||||||||||||
Total Assets | $ | 1,064,915 | $ | 1,077,937 | $ | 1,064,915 | $ | 1,077,937 |
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 March 27, 2021 and September 26, 2020 are as follows: |
March 27, 2021 | September 26, 2020 | |||||||||||||||
Gross | Gross | |||||||||||||||
Carrying | Accumulated | Carrying | Accumulated | |||||||||||||
Amount | Amortization | Amount | Amortization | |||||||||||||
(in thousands) | ||||||||||||||||
FOOD SERVICE | ||||||||||||||||
Indefinite lived intangible assets | ||||||||||||||||
Trade names | $ | 10,408 | $ | - | $ | 10,408 | $ | - | ||||||||
Amortized intangible assets | ||||||||||||||||
Non compete agreements | 670 | 670 | 670 | 645 | ||||||||||||
Customer relationships | 13,000 | 5,538 | 19,737 | 11,595 | ||||||||||||
License and rights | 1,690 | 1,354 | 1,690 | 1,312 | ||||||||||||
TOTAL FOOD SERVICE | $ | 25,768 | $ | 7,562 | $ | 32,505 | $ | 13,552 | ||||||||
RETAIL SUPERMARKETS | ||||||||||||||||
Indefinite lived intangible assets | ||||||||||||||||
Trade names | $ | 12,750 | $ | - | $ | 12,750 | $ | - | ||||||||
Amortized Intangible Assets | ||||||||||||||||
Trade names | 676 | 587 | 676 | 519 | ||||||||||||
Customer relationships | 7,907 | 5,535 | 7,907 | 5,140 | ||||||||||||
TOTAL RETAIL SUPERMARKETS | $ | 21,333 | $ | 6,122 | $ | 21,333 | $ | 5,659 | ||||||||
FROZEN BEVERAGES | ||||||||||||||||
Indefinite lived intangible assets | ||||||||||||||||
Trade names | $ | 9,315 | $ | - | $ | 9,315 | $ | - | ||||||||
Distribution rights | 36,100 | - | 36,100 | - | ||||||||||||
Amortized intangible assets | ||||||||||||||||
Customer relationships | 1,439 | 329 | 1,439 | 257 | ||||||||||||
Licenses and rights | 1,400 | 1,037 | 1,400 | 1,002 | ||||||||||||
TOTAL FROZEN BEVERAGES | $ | 48,254 | $ | 1,366 | $ | 48,254 | $ | 1,259 | ||||||||
CONSOLIDATED | $ | 95,355 | $ | 15,050 | $ | 102,092 | $ | 20,470 |
AmortizedFully amortized intangible assets have been removed from the March 27, 2021 amounts.
Amortizing 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 March 27, 2021 and December 24, 2016 March 28, 2020 was $819,000$777,000 and $1,108,000,$833,000, respectively. Aggregate amortization expense of intangible assets for the six months ended March 27, 2021 and March 28, 2020 was $1,457,000 and $1,676,000, respectively.
Estimated amortization expense for the next five fiscal years is approximately $3,500,000$2,500,000 in 2018, $3,400,000 in 2019, $3,000,000 in 2020, $2,400,000 in 2021, and $2,300,000 in 2022.2022, $2,300,000 in 2023, $2,000,000 in 2024, and $1,400,000 in 2025. The weighted amortization period of the intangible assets is 10.810.9 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 March 27, 2021 | $ | 61,189 | $ | 4,146 | $ | 56,498 | $ | 121,833 | ||||||||
Balance at September 26, 2020 | $ | 61,189 | $ | 4,146 | $ | 56,498 | $ | 121,833 |
In last year’s fiscal year, goodwill of $1,236,000 was acquired in an ICEE distributor acquisition in our frozen beverage segment, goodwill of $14,175,000 was acquired in the Hill & Valley acquisition in our food service segment and goodwill of $658,000 was acquired in our Labriola Baking acquisition, also in our food service segment.
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 and 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 and 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 March 27, 2021 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 | $ | 28,959 | $ | 381 | $ | 15 | $ | 29,325 | ||||||||||||||||
Certificates of Deposit | 5,920 | 8 | - | 5,928 | ||||||||||||||||||||||||||||
Total marketable securities held to maturity | $ | 131,511 | $ | 173 | $ | 551 | $ | 131,133 | $ | 28,959 | $ | 381 | $ | 15 | $ | 29,325 |
The amortized cost, unrealized gains and losses, and fair market values of our investment securities available for sale at December 30, 2017 March 27, 2021 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 | $ | 0 | $ | 638 | $ | 2,950 | ||||||||||||||||
Preferred Stock | 16,791 | 608 | 73 | 17,326 | 9,489 | 160 | 81 | 9,568 | ||||||||||||||||||||||||
Total marketable securities available for sale | $ | 29,794 | $ | 666 | $ | 310 | $ | 30,150 | $ | 13,077 | $ | 160 | $ | 719 | $ | 12,518 |
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, 20192021 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 termlong-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 20172021 through 2021,2023, with $123$29 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 26, 2020 are summarized as follows:
Gross | Gross | Fair | ||||||||||||||||||||||||||||||
Amortized | Unrealized | Unrealized | Market | |||||||||||||||||||||||||||||
Gross | Gross | Fair | Cost | Gains | Losses | Value | ||||||||||||||||||||||||||
Amortized | Unrealized | Unrealized | Market | (in thousands) | ||||||||||||||||||||||||||||
Cost | Gains | Losses | Value | |||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||
Corporate Bonds | $ | 114,101 | $ | 424 | $ | 155 | $ | 114,370 | 68,078 | 1,015 | 32 | 69,061 | ||||||||||||||||||||
Certificates of Deposit | 5,920 | 18 | 1 | 5,937 | ||||||||||||||||||||||||||||
Total marketable securities held to maturity | $ | 120,021 | $ | 442 | $ | 156 | $ | 120,307 | $ | 68,078 | $ | 1,015 | $ | 32 | $ | 69,061 |
The amortized cost, unrealized gains and losses, and fair market values of our investment securities available for sale at September 30, 2017 26, 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 | $ | 77 | $ | 240 | $ | 12,840 | $ | 3,588 | $ | 0 | $ | 738 | $ | 2,850 | ||||||||||||||||
Preferred Stock | 16,791 | 711 | 82 | 17,420 | 11,596 | 116 | 586 | 11,126 | ||||||||||||||||||||||||
Total marketable securities available for sale | $ | 29,794 | $ | 788 | $ | 322 | $ | 30,260 | $ | 15,184 | $ | 116 | $ | 1,324 | $ | 13,976 |
The amortized cost and fair value of the Company’sCompany’s held to maturity securities by contractual maturity at December 30, 2017 March 27, 2021 and September 30, 2017 26, 2020 are summarized as follows:
September 24, 2011 | December 30, 2017 | September 30, 2017 | ||||||||||||||||||||||||||||||
March 27, 2021 | September 26, 2020 | |||||||||||||||||||||||||||||||
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 | $ | 21,379 | $ | 21,640 | $ | 51,151 | $ | 51,815 | ||||||||||||||||
Due after one year through five years | 82,066 | 81,689 | 60,908 | 61,113 | 7,580 | 7,685 | 16,927 | 17,246 | ||||||||||||||||||||||||
Due after five years through ten years | - | - | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||
Total held to maturity securities | $ | 131,511 | $ | 131,133 | $ | 120,021 | $ | 120,307 | $ | 28,959 | $ | 29,325 | $ | 68,078 | $ | 69,061 | ||||||||||||||||
Less current portion | 49,445 | 49,444 | 59,113 | 59,194 | 21,379 | 21,640 | 51,151 | 51,815 | ||||||||||||||||||||||||
Long term held to maturity securities | $ | 82,066 | $ | 81,689 | $ | 60,908 | $ | 61,113 | $ | 7,580 | $ | 7,685 | $ | 16,927 | $ | 17,246 |
Proceeds from the redemption and sale of marketable securities were $19,096,000$15,189,000 and $41,337,000 in the three and six months ended December 30, 2017 March 27, 2021 and $475,000were $12,156,000 and $30,938,000 in the three and six months ended December 24, 2016, March 28, 2020, respectively. GainsA gain of $7,558$41,000 and $119,000 were recorded in the three and six months ended December 30, 2017 March 27, 2021 and no gains or losses of $2,059,000 and $2,070,000 were recorded in the three and six months ended December 24, 2016.March 28, 2020. Included in the gains and losses were unrealized gains of $649,000 and unrealized losses of $1,993,000 in the six months ended March 27, 2021 and March 28, 2020, respectively. Unrealized losses of $46,000 and $2,064,000 were recorded in the three months ended March 27, 2021 and March 28, 2020, respectively. We use the specific identification method to determine the cost of securities sold.
Total marketable securities held to maturity as of March 27, 2021 with credit ratings of AAA/AA/A had an amortized cost basis totaling $7,966,000 and those with credit ratings of BBB/BB/B had an amortized cost basis totaling $20,993,000. This rating information was obtained March 31, 2021.
Note12 Changes to the components of accumulated other comprehensive loss are as follows:
Three Months Ended March 27, 2021 | Six Months Ended March 27, 2021 | |||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Foreign Currency | Foreign Currency | |||||||||||||||
Translation | Translation | |||||||||||||||
Adjustments | Total | Adjustments | Total | |||||||||||||
Beginning Balance | $ | (13,308 | ) | $ | (13,308 | ) | $ | (15,587 | ) | $ | (15,587 | ) | ||||
Other comprehensive income (loss) before reclassifications | (531 | ) | (531 | ) | 1,748 | $ | 1,748 | |||||||||
Ending Balance | $ | (13,839 | ) | $ | (13,839 | ) | $ | (13,839 | ) | $ | (13,839 | ) |
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 December 24, 2016 | Three Months Ended March 28,2020 | Six Months Ended March 28,2020 | ||||||||||||||||||||||||||
(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 | Total | Adjustments | Total | ||||||||||||||||||||||
Beginning Balance | $ | (13,086 | ) | $ | (329 | ) | $ | (13,415 | ) | $ | (12,178 | ) | $ | (12,178 | ) | $ | (12,988 | ) | $ | (12,988 | ) | |||||||
Other comprehensive(loss)income before reclassifications | (1,104 | ) | (103 | ) | (1,207 | ) | ||||||||||||||||||||||
Other comprehensive income (loss) before reclassifications | (3,921 | ) | (3,921 | ) | (3,111 | ) | $ | (3,111 | ) | |||||||||||||||||||
Amounts reclassified from accumulated other comprehensive income | - | - | - | |||||||||||||||||||||||||
Ending Balance | $ | (14,190 | ) | $ | (432 | ) | $ | (14,622 | ) | $ | (16,099 | ) | $ | (16,099 | ) | $ | (16,099 | ) | $ | (16,099 | ) |
|
|
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 $1,768,000 and $203,000 for approximately $11 million. the three months ended March 27, 2021 and were $3,789,000 and $469,000 for the six months ended March 27, 2021. Sales and operating income of ICEE Distributors were $2,500,000 and $400,000 for the three months ended March 28, 2020 and were $5,000,000 and $900,000 for the six months ended March 28, 2020.
On August 16, 2017, February 4, 2020, we acquired Labriola Baking Company, a bakery the assets of breadsBAMA ICEE, based in Birmingham, Alabama. BAMA ICEE 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 million annually, is a manufacturer$3.5 million. Sales and operating income of pre-baked breads, rollsBAMA ICEE were $399,000 and soft pretzels$69,000 for retail in-store bakery the three months ended March 27, 2021 and foodservice outlets nationwide.were $805,000 and $144,000 for six months ended March 27, 2021. Sales and operating income of BAMA ICEE were $300,000 and $100,000 for both the three and six months ended March 28, 2020.
The purchase price allocations for the acquisitions are as follows:
(in thousands) | ||||||||||||
ICEE | BAMA | Total | ||||||||||
Distributors | ICEE | |||||||||||
Accounts Receivable, net | $ | 721 | $ | 71 | $ | 792 | ||||||
Inventories | 866 | 77 | 943 | |||||||||
Property, plant & equipment, net | 4,851 | 1,722 | 6,573 | |||||||||
Customer Relationships | 569 | 133 | 702 | |||||||||
Distribution rights | 22,400 | 6,800 | 29,200 | |||||||||
Goodwill | 15,773 | 3,549 | 19,322 | |||||||||
Accounts Payable | (210 | ) | (110 | ) | (320 | ) | ||||||
Purchase Price | $ | 44,970 | $ | 12,242 | $ | 57,212 |
|
|
The Company incurred 0 acquisitions costs during the three or six months ended March 27, 2021. Acquisition costs of $62,000 and $98,000 are included in other general expense for the three and six months ended March 28, 2020, respectively. |
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 14 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 5 years.
Significant Assumptions and Judgments
Contract Contains a Lease
In evaluating our contracts to determine whether a contract is or contains a lease, we considered the following:
• Whether explicitly or implicitly identified assets have been deployed in the contract; and
• 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 subsidiary of J & J Snack Foods Corp. (the “Company”), issued a Product Recall Notification forlease-by-lease basis, we have determined if the extension should be considered reasonably certain products marketed under the name “MARY B’s Biscuits,” which have the potential to be contaminated with Listeria monocytogenes. exercised and thus a right-of-use asset and a lease liability should be recorded.
Discount Rate
The affected products were manufactured by Flowers Foods, Inc. (“Flowers”), anddiscount rate for leases, if not explicitly stated in the Companylease, is workingthe incremental borrowing rate, which is the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in coordination with Flowers anda similar economic environment.
We used the U.S. Food and Drug Administrationdiscount rate to effectuatecalculate the recall. We believe that Flowers, the manufacturerpresent value of the recalled product and initiatorlease liability at the date of adoption. In the development of the recall, is contractually obligateddiscount rate, we considered our incremental borrowing rate as provided by our lender which was based on cash collateral and credit risk specific to indemnify us, against alland our lease portfolio characteristics.
As of March 27, 2021, the weighted-average discount rate of our operating and finance leases was 3.3% and 3.2%, 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 | Six Months Ended | |||||||
March 27, 2021 | March 27, 2021 | |||||||
(in thousands) | (in thousands) | |||||||
Operating lease cost in Cost of goods sold and Operating Expenses | $ | 3,962 | $ | 7,901 | ||||
Finance lease cost: | ||||||||
Amortization of assets in Cost of goods sold and Operating Expenses | 78 | 154 | ||||||
Interest on lease liabilities in Interest expense & other | 11 | 25 | ||||||
Total finance lease cost | 89 | 179 | ||||||
Short-term lease cost in Cost of goods sold and Operating Expenses | 0 | 0 | ||||||
Total net lease cost | $ | 4,051 | $ | 8,080 |
Supplemental balance sheet information related to a recall triggered by defective product or governmental demand. Although we are not able to estimate the costs related to the recall presently, we do not expect the costs to have a material impact on our financial statements. Additionally, we expect to be reimbursed by Flowers for our costs related to the recall. We anticipate disruption to our product supply and sales going forward. leases is as follows:
March 27, 2021 | ||||
(in thousands) | ||||
Operating Leases | ||||
Operating lease right-of-use assets | $ | 53,994 | ||
Current operating lease liabilities | $ | 12,978 | ||
Noncurrent operating lease liabilities | 43,609 | |||
Total operating lease liabilities | $ | 56,587 | ||
Finance Leases | ||||
Finance lease right-of-use assets in Property, plant and equipment, net | $ | 516 | ||
Current finance lease liabilities | $ | 288 | ||
Noncurrent finance lease liabilities | 256 | |||
Total finance lease liabilities | $ | 544 |
Supplemental cash flow information related to leases is as follows: |
Three Months Ended | Six Months Ended | |||||||
March 27, 2021 | March 27, 2021 | |||||||
(in thousands) | (in thousands) | |||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
Operating cash flows from operating leases | $ | 4,001 | $ | 7,987 | ||||
Operating cash flows from finance leases | $ | 87 | $ | 173 | ||||
Financing cash flows from finance leases | $ | 11 | $ | 25 | ||||
Supplemental noncash information on lease liabilities arising from obtaining right-of-use assets | $ | 578 | $ | 1,354 | ||||
Supplemental noncash information on lease liabilities removed due to purchase of leased asset | $ | - | - |
As of March 27, 2021, the maturities of lease liabilities were as follows: |
(in thousands) | ||||||||
Operating Leases | Finance Leases | |||||||
Six months ending September 25, 2021 | $ | 7,639 | $ | 184 | ||||
2022 | 13,496 | 168 | ||||||
2023 | 11,379 | 98 | ||||||
2024 | 8,722 | 98 | ||||||
2025 | 5,522 | 26 | ||||||
Thereafter | 16,355 | 0 | ||||||
Total minimum payments | $ | 63,113 | $ | 574 | ||||
Less amount representing interest | (6,526 | ) | (30 | ) | ||||
Present value of lease obligations | $ | 56,587 | $ | 544 |
Item 2. | Management’s Discussion and Analysis of |
Statements made in this Form 10-Q that are not historical or current facts are “forward-looking statements” made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 (the “Act”) and Section 21E of the Securities Exchange Act of 1934. These statements often can be identified by the use of terms such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” “approximate,” or “continue,” or the negative thereof. We intend that such forward-looking statements be subject to the safe harbors for such statements. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management’s best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties, and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.
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,April 13, 2021, to shareholders of record as of the close of business on December 13, 2017.March 22, 2021.
In our fiscal year ended September 30, 2017, weWe 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 wein fiscal year 2020, but did not purchase and retire any shares.shares in the six months ended March 27, 2021. 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, 2017March 27, 2021 and December 24, 2016March 28, 2020, 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$531,000 and $3,921,000 in accumulated other comprehensive loss, respectively. In the six months ended March 27, 2021 and March 28, 2020, fluctuations in the 2018 first quartervaluation of the Mexican and Canadian currencies and the resulting translation of the net assets of our Mexican and Canadian subsidiaries caused a decrease of $1,748,000 and an increase of $1,104,000$3,111,000 in accumulated other comprehensive loss, in the 2017 first quarter.respectively.
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.March 27, 2021.
Results of OperationsRESULTS OF OPERATIONS
Net sales increased $39,640,000 or 18%decreased by 6% to $265,210,000$256,178,000 in the second quarter and by 10% to $497,175,000 for the threesix months ended December 30, 2017March 27, 2021 compared to the three and six months ended December 24, 2016. Excluding sales from Hill & Valley, Inc., acquired in January 2017, an ICEE distributor located in the Southeast acquired in June 2017 and Labriola Bakery which was acquired in August 2017, sales increased approximately 7% for the quarter.March 28, 2020, respectively.
FOOD SERVICE
Sales to food service customers increased $ 31,967,000 or 21%decreased by 1% in the firstsecond quarter to $182,264,000. Excluding sales of Hill & Valley$169,324,000 and Labriola, sales increased $9,569,000 or 6%by 7% to $329,749,000 for the first quarter. six months, compared to respective prior year periods. Sales to food service customers were negatively impacted by COVID-19 during the current year periods as many venues and locations shut down or sharply curtailed their food service operations. However, traffic across our food service customers continues to improve as theatres re-open, more schools open their doors, entertainment and amusement venues increase capacity, and growth continues to strengthen across quick serve and casual dining restaurants.
Soft pretzel sales to the food service market increased 21%decreased by 19% to $50,131,000$36,776,000 in the second quarter and about 14% without Labriola sales. In additionby 27% 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.$69,463,000 in the six months.
Frozen juices and ices sales decreased 4%increased by 12% to $7,184,000$10,590,000 in the three months with sales increasessecond quarter and decreases across our customer base.increased by 2% to $16,885,000 in the six months.
Churro sales to food service customers were up 1%relatively flat in the second quarter as compared with prior year at $14,720,000 but decreased by 16% to $14,592,000.$26,262,000 in the six months.
Sales of bakery products increased $19,654,000 or 26%decreased by 7% in the firstsecond quarter to $94,933,000. Excluding sales of Hill & Valley, bakery sales were essentially flat$82,910,000 and decreased 7% to $171,874,000 for the quarter.six months as COVID-19 impacted traffic, purchase choices and frequency in this part of our business.
Sales of handhelds increased $2,773,000 or 37%168% in the second quarter with all of the increase coming from sales to three customers. Sales of funnel cake increased $911,000 or 23%$19,992,000 and by 157% in the quarter to $4,794,000 as we continue to increase sales to school food service.six months led by the continued success of a new product developed for one of our larger wholesale club customers.
Sales of new products in the first twelve months since their introduction were approximately $8 million$14,928,000 in this quarter.the second quarter and $27,167,000 in the six months led by the previously noted handheld item. Price increases had noa marginal impact on salesresults in the quarter as traffic and net volume increases, including new productdrove almost all of the sales as defined above and Hill & Valley and Labriola sales, accounted for approximately $32 million of sales in the quarter.decline compared to prior year.
Operating income in our Food Service segment decreased from $17,054,000by 24% to $15,900,000$6,055,000 in the quarter. Hill & Valley contributed $1,384,000second quarter and by 53% to operating income$12,235,000 in the quarter; however, operating income in the balance of our food service business wassix months primarily due to sales declines which impacted by generally higher costs for payrollmargin efficiencies 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. expense leverage.
RETAIL SUPERMARKETS
Sales of products to retail supermarkets increased $1,457,000 or 7%by 17% to $23,076,000$43,906,000 in the first quarter. Soft pretzel sales forsecond quarter and increased by 24% to $83,000,000 in the first quarter were up 18%six months. Our SUPERPRETZEL brand has performed well helping to $10,512,000 primarily due to sales of AUNTIE ANNE’Sdrive a 28% increase in soft pretzels undersales in the second quarter to $15,789,000 and a license agreement entered into34% increase in 2017.the six months to $29,677,000. Sales of frozen juices and ices decreased $124,000 or 1%increased by 22% to $9,727,000$19,386,000 in the first quarter.second quarter and by 34% to $34,702,000 in the six months. Sales of biscuits decreased by 2% to $6,495,000 in the second quarter, but increased by 4% to $14,155,000 in the six months. Handheld sales to retail supermarket customers decreased 12%by 28% to $3,026,000$2,243,000 in the second quarter asand by 15% to $5,023,000 in the sales of this product line continues their long term decline.six months.
Sales of new products, which in the firstsecond quarter were approximately $1.9 million.$150,000, and were approximately $550,000 for the six months, were primarily related to frozen novelty items. Price increases had noa minimal impact on salesgrowth in the second quarter and net volume increases, including new product sales as defined above accounted for $1.5 million of sales in the quarter.six months, as sales were driven by increased consumer traffic and volume in retail outlets.
Operating income in our Retail Supermarkets segment increased by 47% to $6,364,000 in the second quarter and by 69% to $11,087,000 in the six months. The increases in operating income was $2,558,000 in this year’s first quarter comparedprimarily attributable to $1,046,000 in last year’s quarter, a 145% increase. Lower coupon expense of $508,000 and lower media spending of $543,000 along with the 18% increase in soft pretzel sales were the major reasons for the increase in sales and the improvement in operating income.margins.
FROZEN BEVERAGES
Frozen beverage and related product sales increased 12%decreased by 32% to $59,870,000$42,948,000 in the firstsecond quarter and excludingby 37% to $84,426,000 in the six months. Beverages sales ofdecreased by 42% to $18,529,000 in the acquired ICEE distributorsecond quarter and by 49% to $34,384,000 in the six months. Gallon sales were up about 10%. Beverage related sales alone were up 21% to $34,303,000down 40% in the quarter and were up about 19% withoutdown 46% in the six months. Service revenue decreased by 16% to $18,218,000 in the second quarter and by 16% to $37,114,000 in the six months, with the decreases primarily attributable to the cancellation of a key customer’s planned maintenance program.
Machines revenue (primarily sales of the acquired ICEE distributor. Gallon sales were up 15% for the three months with higher salesfrozen beverage machines) decreased by 36% to movie theatres and across our customer base. Service revenue increased 5% to $19,004,000$5,663,000 in the firstsecond quarter with sales increases and by 42% to $12,152,000 in the six months. The decreases spread throughout ourwere primarily attributable to slower customer base.expansion and replacement during the periods.
SalesOur Frozen Beverage segment incurred an operating loss of beverage machines, which tend to fluctuate from$5,189,000 in the second quarter compared with an operating loss of $1,306,000 in the prior year to year while following no specific trend, were $6,313,000, a decrease of 10%. Operating income insecond quarter. In the six months, our Frozen Beverage segment increasedincurred an operating loss of $15,514,000 compared with operating income of $146,000 in the prior year six-month period. The comparative performance was impacted due to $2,770,000 in this quarter compared to $1,227,000 last yearthe challenging sales environment as a result of significantly higher beverage sales.the COVID-19 pandemic which also impacts our gross margin efficiency and ability to leverage fixed expenses.
CONSOLIDATED
Gross profit as a percentage of sales was 27.63%23.8% in the three monthsecond quarter and 25.5% last year. Gross profit as a percentage of sales was 22.3% in the six-month period this year and 29.21%26.5% last year. About 20% of the grossGross profit percentage decrease in the quarter resulteddecreased because of continued COVID-19 sales pressure from theour food service and frozen beverages segments. This creates margin leverage challenges as we manage lower gross profit percentage of the Hill & Valley business. The balance of the decrease was caused by higher costs for payroll and insurance, inefficiencies in our recently acquired Labriola production facility (compounded by the integration of products previously manufactured at other facilities), product mix changes, 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. volumes on businesses with large fixed-expense bases.
Total operating expenses increased $5,483,000decreased by 8% to $53,666,000 in the firstsecond quarter but asand by 10% to $103,213,000 in the six months. As a percentage of net sales, operating expenses decreased from 21.5% to 19.6%20.9% in the second quarter but increased slightly in the six months from 20.6% last year. 20.7% to 20.8%.
Marketing expenses decreased to 8.14%7.5% of net sales in this year’sthe second quarter from 9.01% last8.8% in prior year primarily because of lower media spendingand to 7.3% in our retail supermarket business and lower marketing expenses of the acquired Hill & Valley and Labriola businesses.six months compared with 8.4% in prior year’s six-month period. Distribution expenses were 7.98%increased to 9.9% of net sales in thisthe second quarter from 9.1% in the prior year and to 9.7% in the six months compared with 8.7% in prior year’s quarter and 8.05%six-month period. Administrative expenses decreased to 3.6% of net sales in last year’s quarter. Administrative expenses were 3.53% of sales thisthe second quarter comparedfrom 3.7% in prior year, but increased to 3.59% of sales last year3.8% in the first quartersix months compared with 3.6% in prior year’s six-month period.
Operating income increased $1,901,000 or 10%decreased by 34% to $21,228,000$7,230,000 in the firstsecond quarter and by 76% to $7,808,000 in the six months as a result of the aforementioned items.
InvestmentOur investments generated before tax income increased by $262,000of $579,000 in the firstsecond quarter, resulting from higher amounts invested and slightly higher interest rates.
Othera $992,000 increase over prior year. In the six months, our investments generated before tax income this quarter includesof $1,949,000, a $520,000 gain on a sale of property.42% increase over the prior year period. The increase in before tax investment income compared with prior year was primarily attributable to improved market conditions.
Net earnings increased $22,709,000, or 168%,decreased by 17% to $6,061,000 in the current three month periodsecond quarter and by 68% to $36,249,000. Net earnings for$7,839,000 in 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 impacted by a $1.2 million, or $.06 per diluted share, provision for the one time repatriation tax required under the new tax law. Excluding the deferred tax gain and the one time repatriation tax, oursix months. Our effective tax rate decreased to 28.6% from 34.0%was 20% in the six months compared with 28% 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. Last year’s quarter’s effective tax rate benefitted from an unusually high tax benefit on share based compensation of $783,000 which compares to 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.six- month period.
There are many factors which can impact our net earnings from year to year and in the long run, among which are the supply and cost of raw materials and labor, insurance costs, factors impacting sales as noted above, the continuing consolidation of our customers, our ability to manage our manufacturing, marketing and distribution activities, our ability to make and integrate acquisitions and changes in tax laws and interest rates.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
There has been no material change in the Company’s assessment of its sensitivity to market risk since its presentation set forth, in item 7a. “Quantitative and Qualitative Disclosures About Market Risk,” in its 2020 annual report on Form 10-K filed with the SEC. |
There has been no material change in the Company’s assessment of its sensitivity to market risk since its presentation set forth, in item 7a. “Quantitative and Qualitative Disclosures About Market Risk,” in its 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,
The Chief Executive Officer and the Chief Financial Officer of the Company (its principal executive officer and principal financial officer, respectively) have concluded, based on their evaluation as of March 27, 2021, 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,March 27,2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION |
Item 6. | Exhibits |
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) |
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.
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