UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
☒ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the period ended December 30, 2017March 26, 2022
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 | ☐ |
|
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).
☒ | Yes | ☐ |
|
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 | ☒ |
|
As January 25, 2018At April 29, 2022 there were 18,678,47319,174,920 shares of the Registrant’s Common Stock outstanding.
INDEX
Page
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Part I. | Financial Information | |
Item l. | Consolidated Financial Statements | |
Consolidated Balance Sheets – | 3 | |
Consolidated Statements of Earnings (unaudited) – Three | 4 | |
Consolidated Statements of Comprehensive Income (unaudited) – Three and Six Months Ended | 5 | |
Consolidated Statements of Changes In Stockholders’ Equity (unaudited) – Three and Six Months Ended March 26, 2022 and March 27, 2021 | 6 | |
Consolidated Statements of Cash Flows (unaudited) – |
| |
Notes to the Consolidated Financial Statements (unaudited) |
| |
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 | 31 |
Item 6. | Exhibits |
|
J & J SNACK FOODS CORP. AND SUBSIDIARIES | |||
CONSOLIDATED BALANCE SHEETS | |||
(in thousands, except share amounts) |
December 30, | September 30, | March 26, | ||||||||||||||
2017 | 2017 | 2022 | September 25, | |||||||||||||
(unaudited) | (unaudited) | 2021 | ||||||||||||||
Assets | ||||||||||||||||
Current assets | ||||||||||||||||
Cash and cash equivalents | $ | 81,089 | $ | 90,962 | $ | 221,017 | $ | 283,192 | ||||||||
Marketable securities held to maturity | 49,445 | 59,113 | 4,530 | 7,980 | ||||||||||||
Accounts receivable, net | 109,709 | 124,553 | 187,933 | 162,939 | ||||||||||||
Inventories | 113,049 | 103,268 | 158,991 | 123,160 | ||||||||||||
Prepaid expenses and other | 3,800 | 3,936 | 11,805 | 7,498 | ||||||||||||
Total current assets | 357,092 | 381,832 | 584,276 | 584,769 | ||||||||||||
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 | 340,534 | 343,716 | ||||||||||||
Marketing equipment | 277,236 | 278,860 | 263,494 | 258,624 | ||||||||||||
Transportation equipment | 8,438 | 8,449 | 10,912 | 10,315 | ||||||||||||
Office equipment | 25,574 | 25,302 | 44,641 | 34,648 | ||||||||||||
Improvements | 37,999 | 38,003 | 48,073 | 45,578 | ||||||||||||
Construction in progress | 21,997 | 16,880 | 45,418 | 35,285 | ||||||||||||
Total Property, plant and equipment, at cost | 659,058 | 653,889 | 782,148 | 757,242 | ||||||||||||
Less accumulated depreciation and amortization | 429,217 | 426,308 | 504,249 | 490,055 | ||||||||||||
Property, plant and equipment, net | 229,841 | 227,581 | 277,899 | 267,187 | ||||||||||||
Other assets | ||||||||||||||||
Goodwill | 102,511 | 102,511 | 121,833 | 121,833 | ||||||||||||
Other intangible assets, net | 60,453 | 61,272 | 76,599 | 77,776 | ||||||||||||
Marketable securities held to maturity | 82,066 | 60,908 | 0 | 4,047 | ||||||||||||
Marketable securities available for sale | 30,150 | 30,260 | 5,951 | 10,084 | ||||||||||||
Operating lease right-of-use assets | 53,892 | 54,555 | ||||||||||||||
Other | 2,904 | 2,864 | 2,878 | 1,968 | ||||||||||||
Total other assets | 278,084 | 257,815 | 261,153 | 270,263 | ||||||||||||
Total Assets | $ | 865,017 | $ | 867,228 | $ | 1,123,328 | $ | 1,122,219 | ||||||||
Liabilities and Stockholders' Equity | ||||||||||||||||
Current Liabilities | ||||||||||||||||
Current obligations under capital leases | $ | 339 | $ | 340 | ||||||||||||
Current finance lease liabilities | $ | 127 | $ | 182 | ||||||||||||
Accounts payable | 68,033 | 72,729 | 101,238 | 96,789 | ||||||||||||
Accrued insurance liability | 11,215 | 10,558 | 15,525 | 16,260 | ||||||||||||
Accrued liabilities | 10,491 | 7,753 | 6,456 | 10,955 | ||||||||||||
Current operating lease liabilities | 13,747 | 13,395 | ||||||||||||||
Accrued compensation expense | 11,764 | 19,826 | 16,487 | 17,968 | ||||||||||||
Dividends payable | 8,400 | 7,838 | 12,136 | 12,080 | ||||||||||||
Total current liabilities | 110,242 | 119,044 | 165,716 | 167,629 | ||||||||||||
Long-term obligations under capital leases | 815 | 904 | ||||||||||||||
Noncurrent finance lease liabilities | 336 | 392 | ||||||||||||||
Noncurrent operating lease liabilities | 45,501 | 46,557 | ||||||||||||||
Deferred income taxes | 44,462 | 62,705 | 61,339 | 61,578 | ||||||||||||
Other long-term liabilities | 2,117 | 2,253 | 455 | 409 | ||||||||||||
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 19,173,000 and 19,084,000 respectively | 87,688 | 73,597 | ||||||||||||||
Accumulated other comprehensive loss | (12,872 | ) | (8,875 | ) | (13,281 | ) | (13,383 | ) | ||||||||
Retained Earnings | 701,664 | 673,815 | 775,574 | 785,440 | ||||||||||||
Total stockholders' equity | 707,381 | 682,322 | 849,981 | 845,654 | ||||||||||||
Total Liabilities and Stockholders' Equity | $ | 865,017 | $ | 867,228 | $ | 1,123,328 | $ | 1,122,219 |
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 26, | March 27, | March 26, | March 27, | |||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Net sales | $ | 281,513 | $ | 256,178 | $ | 600,003 | $ | 497,175 | ||||||||
Cost of goods sold | 216,165 | 195,282 | 455,280 | 386,154 | ||||||||||||
Gross profit | 65,348 | 60,896 | 144,723 | 111,021 | ||||||||||||
Operating expenses | ||||||||||||||||
Marketing | 21,036 | 19,192 | 41,943 | 36,493 | ||||||||||||
Distribution | 28,349 | 25,443 | 61,664 | 48,332 | ||||||||||||
Administrative | 11,719 | 9,216 | 22,088 | 18,656 | ||||||||||||
Other general expense | 156 | (185 | ) | 95 | (268 | ) | ||||||||||
Total operating expenses | 61,260 | 53,666 | 125,790 | 103,213 | ||||||||||||
Operating income | 4,088 | 7,230 | 18,933 | 7,808 | ||||||||||||
Other income (expense) | ||||||||||||||||
Investment income | 160 | 579 | 431 | 1,949 | ||||||||||||
Interest expense & other | (57 | ) | 4 | (75 | ) | (11 | ) | |||||||||
Earnings before income taxes | 4,191 | 7,813 | 19,289 | 9,746 | ||||||||||||
Income taxes | 920 | 1,752 | 4,927 | 1,907 | ||||||||||||
NET EARNINGS | $ | 3,271 | $ | 6,061 | $ | 14,362 | $ | 7,839 | ||||||||
Earnings per diluted share | $ | 0.17 | $ | 0.32 | $ | 0.75 | $ | 0.41 | ||||||||
Weighted average number of diluted shares | 19,206 | 19,130 | 19,180 | 19,081 | ||||||||||||
Earnings per basic share | $ | 0.17 | $ | 0.32 | $ | 0.75 | $ | 0.41 | ||||||||
Weighted average number of basic shares | 19,134 | 19,006 | 19,110 | 18,971 |
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 26, | March 27, | March 26, | March 27, | |||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Net earnings | $ | 3,271 | $ | 6,061 | $ | 14,362 | $ | 7,839 | ||||||||
Foreign currency translation adjustments | 546 | (531 | ) | 102 | 1,748 | |||||||||||
Total other comprehensive income (loss), net of tax | 546 | (531 | ) | 102 | 1,748 | |||||||||||
Comprehensive income | $ | 3,817 | $ | 5,530 | $ | 14,464 | $ | 9,587 |
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 25, 2021 | 19,084 | $ | 73,597 | $ | (13,383 | ) | $ | 785,440 | $ | 845,654 | ||||||||||
Issuance of common stock upon exercise of stock options | 5 | 706 | 0 | 0 | 706 | |||||||||||||||
Foreign currency translation adjustment | - | 0 | (444 | ) | 0 | (444 | ) | |||||||||||||
Dividends declared | - | 0 | 0 | (12,092 | ) | (12,092 | ) | |||||||||||||
Share-based compensation | - | 1,083 | 0 | 0 | 1,083 | |||||||||||||||
Net earnings | - | 0 | 0 | 11,091 | 11,091 | |||||||||||||||
Balance at December 25, 2021 | 19,089 | $ | 75,386 | $ | (13,827 | ) | $ | 784,439 | $ | 845,998 | ||||||||||
Issuance of common stock upon exercise of stock options | 76 | 10,012 | 0 | 0 | 10,012 | |||||||||||||||
Issuance of common stock for employee stock purchase plan | 8 | 1,023 | 0 | 0 | 1,023 | |||||||||||||||
Foreign currency translation adjustment | - | 0 | 546 | 0 | 546 | |||||||||||||||
Dividends declared | - | 0 | 0 | (12,136 | ) | (12,136 | ) | |||||||||||||
Share-based compensation | - | 1,267 | 0 | 0 | 1,267 | |||||||||||||||
Net earnings | - | 0 | 0 | 3,271 | 3,271 | |||||||||||||||
Balance at March 26, 2022 | 19,173 | $ | 87,688 | $ | (13,281 | ) | $ | 775,574 | $ | 849,981 |
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 |
The accompanying notes are an integral part of these statements. |
J & J SNACK FOODS CORP. AND SUBSIDIARIES | |||
CONSOLIDATED STATEMENTS OF | |||
(Unaudited) | |||
(in |
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 26, | March 27, | |||||||
2022 | 2021 | |||||||
Operating activities: | ||||||||
Net earnings | $ | 14,362 | $ | 7,839 | ||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||
Depreciation of fixed assets | 23,868 | 24,253 | ||||||
Amortization of intangibles and deferred costs | 1,183 | 1,457 | ||||||
Loss from disposals of property & equipment | 100 | 0 | ||||||
Share-based compensation | 2,350 | 2,270 | ||||||
Deferred income taxes | (251 | ) | (4 | ) | ||||
Loss (Gain) on marketable securities | 69 | (768 | ) | |||||
Other | (184 | ) | (163 | ) | ||||
Changes in assets and liabilities net of effects from purchase of companies | ||||||||
Increase in accounts receivable | (25,031 | ) | (10,884 | ) | ||||
Increase in inventories | (36,538 | ) | (6,432 | ) | ||||
Increase in prepaid expenses | (4,308 | ) | (118 | ) | ||||
(Decrease) increase in accounts payable and accrued liabilities | (2,055 | ) | 9,331 | |||||
Net cash (used in) provided by operating activities | (26,435 | ) | 26,781 | |||||
Investing activities: | ||||||||
Purchases of property, plant and equipment | (35,306 | ) | (18,829 | ) | ||||
Proceeds from redemption and sales of marketable securities | 11,526 | 41,337 | ||||||
Proceeds from disposal of property and equipment | 589 | 1,262 | ||||||
Other | 0 | 18 | ||||||
Net cash (used in) provided by investing activities | (23,191 | ) | 23,788 | |||||
Financing activities: | ||||||||
Proceeds from issuance of stock | 11,741 | 13,582 | ||||||
Payments on finance lease obligations | (111 | ) | (173 | ) | ||||
Payment of cash dividend | (24,163 | ) | (21,776 | ) | ||||
Net cash used in financing activities | (12,533 | ) | (8,367 | ) | ||||
Effect of exchange rate on cash and cash equivalents | (16 | ) | 375 | |||||
Net (decrease) increase in cash and cash equivalents | (62,175 | ) | 42,577 | |||||
Cash and cash equivalents at beginning of period | 283,192 | 195,809 | ||||||
Cash and cash equivalents at end of period | $ | 221,017 | $ | 238,386 |
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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 December 30, 2017 March 26, 2022 and December 24, 2016 March 27, 2021 are not necessarily indicative of results for the full year. Sales of our frozen beverages and frozen juice bars and icesnovelties 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 previously shut down or sharply curtailed their foodservice operations as a result of COVID-19. While the majority of these venues have reopened, the extent of the future impact of COVID-19 on our operations depends on future developments of the virus and its effects which are uncertain at this time.
While we believe that the disclosures presented are adequate to make the information not misleading, it is suggestedwe suggest that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes included in the Company’sCompany’s Annual Report on Form 10-K10-K for the fiscal year ended September 30, 2017.25, 2021.
Note 2
Revenue Recognition
When Performance Obligations Are Satisfied
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account for revenue recognition. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.
The singular performance obligation of our customer contracts for product and machine sales is determined by each individual purchase order and the respective products ordered, with revenue being recognized at a point-in-time when the obligation under the terms of the agreement is satisfied and product control is transferred to our customer. Specifically, control transfers to our customers when the product is delivered to, installed, or picked up by our customers based upon applicable shipping terms, as our customers can direct the use and obtain substantially all of the remaining benefits from the product at this point in time. The performance obligations in our customer contracts for product are generally satisfied within 30 days.
The singular performance obligation of our customer contracts for time and material repair and maintenance equipment service is the performance of the repair and maintenance with revenue being recognized at a point-in-time when the repair and maintenance is completed.
The singular performance obligation of our customer repair and maintenance equipment service contracts is the performance of the repair and maintenance with revenue being recognized over the time the service is expected to be performed. Our customers are billed for service contracts in advance of performance and therefore we have a contract liability recorded within Accrued 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 for shipping and handling fees at the time the products are shipped or when services are performed. The cost of shipping products to the customer is recognized at the time the products are shipped to the customer and our policy is to classify them as Distribution expenses.
Variable Consideration
In addition to fixed contract consideration, our contracts include some form of variable consideration, including sales discounts, trade promotions and certain other sales and consumer incentives, including rebates and coupon redemptions. In general, variable consideration is treated as a reduction in revenue when the related revenue is recognized. Depending on the specific type of variable consideration, we use the most likely amount method to determine the variable consideration. We believe there will be no significant changes to our estimates of variable consideration when any related uncertainties are resolved with our customers. We review and update our estimates and related accruals of variable consideration each period based on historical experience. Our recorded liability for allowances, end-user pricing adjustments and trade spending was $15.2 million at March 26, 2022 and $14.6 million at September 25, 2021.
Warranties & Returns
We provide all customers with a standard or assurance type warranty. Either stated or implied, we provide assurance the related products will comply with all agreed-upon specifications and other warranties provided under the law. No services beyond an assurance warranty are provided to our customers.
We do not grant a general right of return. However, customers may return defective or non-conforming products. Customer remedies may include either a cash refund or an exchange of the product. We do not estimate a right of return and related refund liability as returns of our products are rare.
Contract Balances
Our customers are billed for service contracts in advance of performance and therefore we have contract liabilities on our balance sheet as follows:
(in thousands) | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
March 26, | March 27, | March 26, | March 27, | |||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Beginning Balance | $ | 1,030 | $ | 1,716 | $ | 1,097 | $ | 1,327 | ||||||||
Additions to contract liability | 1,374 | 1,201 | 2,573 | 2,945 | ||||||||||||
Amounts recognized as revenue | (1,312 | ) | (1,827 | ) | (2,578 | ) | (3,182 | ) | ||||||||
Ending Balance | $ | 1,092 | $ | 1,090 | $ | 1,092 | $ | 1,090 |
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 $1,564,000 and $1,405,000 on March 26, 2022 and September 25, 2021, respectively.
Note |
|
| Depreciation of equipment and buildings is provided for by the straight-line method over the assets’ estimated useful lives. Amortization of improvements is provided for by the straight-line method over the term of the lease or the assets’ estimated useful lives, whichever is shorter. Licenses and rights, customer relationships and non-compete agreements arising from acquisitions are amortized by the straight-line method over periods ranging from |
Note 4 | Basic earnings per common share (EPS) excludes dilution and is computed by dividing income available to common shareholders by the weighted average common shares outstanding during the period. Diluted EPS takes into consideration the potential dilution that could occur if securities (stock options) or other contracts to issue common stock were exercised and converted into common stock. Our calculation of EPS is as follows: |
Three Months Ended March 26, 2022 | ||||||||||||
Income | Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
(in thousands, except per share amounts) | ||||||||||||
Basic EPS | ||||||||||||
Net earnings available to common stockholders | $ | 3,271 | 19,134 | $ | 0.17 | |||||||
Effect of dilutive securities | ||||||||||||
Options | 0 | 72 | 0 | |||||||||
Diluted EPS | ||||||||||||
Net earnings available to common stockholders plus assumed conversions | $ | 3,271 | 19,206 | $ | 0.17 |
270,352 anti-dilutive shares have been excluded in the computation of EPS |
Three Months Ended December 30, 2017 | Six Months ended March 26, 2022 | |||||||||||||||||||||||
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 | |||||||||||||||||||
Net earnings available to common stockholders | $ | 14,362 | 19,110 | $ | 0.75 | |||||||||||||||||||
Effect of Dilutive Securities | ||||||||||||||||||||||||
Effect of dilutive securities | ||||||||||||||||||||||||
Options | - | 112 | (0.01 | ) | 0 | 70 | 0 | |||||||||||||||||
Diluted EPS | ||||||||||||||||||||||||
Net Earnings available to common stockholders plus assumed conversions | $ | 36,249 | 18,778 | $ | 1.93 | |||||||||||||||||||
Net earnings available to common stockholders plus assumed conversions | $ | 14,362 | 19,180 | $ | 0.75 |
271,452 anti-dilutive shares have been excluded in the computation of EPS for the six months ended March 26, 2022. |
Three 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 | $ | 6,061 | 19,006 | $ | 0.32 | |||||||
Effect of dilutive securities | ||||||||||||
Options | 0 | 124 | 0 | |||||||||
Diluted EPS | ||||||||||||
Net earnings available to common stockholders plus assumed conversions | $ | 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 |
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 |
184,672 anti-dilutive shares have been excluded in the computation of EPS for the six months ended March 27, 2021. |
Note 5 | At |
Three months ended | Three Months Ended | Six Months Ended | ||||||||||||||||||||||
December 30, | December 24, | March 26, | March 27, | March 26, | March 27, | |||||||||||||||||||
2017 | 2016 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
(in thousands, except per share amounts) | ||||||||||||||||||||||||
Stock Options | $ | 615 | $ | (211 | ) | |||||||||||||||||||
Stock options | $ | 586 | $ | 447 | $ | 1,400 | $ | 993 | ||||||||||||||||
Stock purchase plan | 200 | 174 | 90 | 64 | 150 | 342 | ||||||||||||||||||
Stock issued to an outside director | 11 | 22 | 22 | 22 | ||||||||||||||||||||
Restricted stock issued to an employee | 1 | 1 | 152 | 47 | 224 | 47 | ||||||||||||||||||
Performance stock issued to employees | 82 | 0 | 121 | 0 | ||||||||||||||||||||
Total share-based compensation | $ | 816 | $ | (36 | ) | $ | 921 | $ | 580 | $ | 1,917 | $ | 1,404 | |||||||||||
The above compensation is net of tax benefits | $ | 137 | $ | 783 | $ | 346 | $ | 446 | $ | 433 | $ | 866 |
The fair value of each option grant is estimated on the date of grant using the Black-Scholes options-pricing model withmodel.
The Company did not grant any stock options during 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.year 2022six-month period.
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 month2021six-month period, the Company granted 300 stock options. The weighted-average grant date fair value of these options was $15.15.$29.54.
In November 2021, the Company issued 8,873 service share units (“RSU”)’s. Each RSU entitles the awardee to one share of common stock upon vesting. The fair value of RSU’s was determined based upon the closing price of the Company’s common stock on the date of grant. NaN such RSU’s were issued in the three-months ended March 26, 2022 or in the three or six-months ended March 27, 2021.
In November 2021, the Company also issued 8,868 performance share units (“PSU”)’s. Each PSU may result in the issuance of up to two shares of common stock upon vesting, dependent upon the level of achievement of the applicable Performance Goal. The fair value of the PSU’s was determined based upon the closing price of the Company’s common stock on the date of grant. Additionally, the Company applies a quarterly probability assessment in computing this non-cash compensation expense, and any change in estimate is reflected as a cumulative adjustment to expense in the quarter of the change. NaN such PSU’s were issued in the three months ended March 26, 2022 or in the three or six-months ended March 27, 2021.
Expected volatility is based on the historical volatility of the price of our common shares over the past 5051 months for 5 year-year options and 10 years for 10 year-year options. We use historical information to estimate expected life and forfeitures within the valuation model. The expected term of awards represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Compensation cost is recognized using a straight-line method over the vesting or service period and is net of estimated forfeitures.
Note 6 | We account for our income taxes under the liability method. Under the liability method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates that will be in effect when these differences reverse. Deferred tax expense is the result of changes in deferred tax assets and |
Additionally, we recognize a liability for income taxes and associated penalties and interest for tax positions taken or expected to be taken in a tax return which are more likely than not to be overturned by taxing authorities (“uncertain tax positions”). We have not recognized a tax benefit in our financial statements for these uncertain tax positions.
The total amount of gross unrecognized tax benefits is $379,000 $343,000 on both March 26, 2022 and $374,000 on December 30, 2017 and September 30, 2017, 25, 2021, respectively, all of which would impact our effective tax rate over time, if recognized. We recognize interest and penalties related to uncertain tax positions as a part of the provision for income taxes. As of December 30, 2017 March 26, 2022, and September 30, 2017, respectively, 25, 2021, the Company has $244,000 and $239,000$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.
Net earnings for the current year quarter benefited from a $20.9 million, or $1.11 per diluted share, gain on the remeasurement of deferred tax liabilities and a $2.0 million, or $0.11 per diluted share, reduction in income taxes related primarily to the lower corporate tax rate enacted under the Tax Cuts and Jobs Act in December 2017. Net earnings were 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, ourOur effective tax rate decreased to 28.6% from 34.0% in the prior year quarter reflecting the reduction in the federal statutory rate to 21% from 35% for the remaining three quarters of fiscal 2018. The gain on the remeasurement of deferredsix months ended March 26, 2022 was 26%. Our effective tax liabilities and the one time repatriation tax are preliminary estimates.
On December 22, 2017, the SEC issued guidance under Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) directing taxpayers to consider the impact of the U.S. legislation as “provisional” when it does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accountingrate for the change insix months ended March 27, 2021 was 20%, and was favorably impacted by the tax law. In accordance with SAB 118,benefits related to share-based compensation. Our effective tax rate was 22% for the estimated incomethree months ended March 26, 2022 and for the three months ended March 27, 2021 as both were favorably impacted by the tax net benefit of $21.7 million represents our best estimate based on interpretation of the U.S. legislation as we are still accumulating databenefits related to finalize the underlying calculations, or in certain cases, the U.S. Treasury is expected to issue further guidance on the application of certain provisions of the U.S. legislation. In accordance with SAB 118, the additional estimated income tax net benefit of $21.7 million is considered provisional and will be finalized before December 22, 2018.
share-based compensation.
Note 7 | In |
In January 2016, The Company adopted this guidance in 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 usefirst quarter of Fiscal 2021 using 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 themodified retrospective transition method. The adoption of this new guidance willASU 2016-13 did not have a material impact on ourthe Company’s 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.
Note 8 | Inventories consist of the following: |
December 30, | September 30, | March 26, | September 25, | |||||||||||||
2017 | 2017 | 2022 | 2021 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Finished goods | $ | 51,808 | $ | 45,394 | $ | 74,457 | $ | 49,756 | ||||||||
Raw materials | 25,291 | 22,682 | 38,023 | 29,529 | ||||||||||||
Packaging materials | 9,765 | 8,833 | 13,130 | 11,168 | ||||||||||||
Equipment parts and other | 26,185 | 26,359 | 33,381 | 32,707 | ||||||||||||
Total Inventories | $ | 113,049 | $ | 103,268 | ||||||||||||
Total inventories | $ | 158,991 | $ | 123,160 |
Note 9 | 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 |
Our three3 reportable segments are Food Service, Retail Supermarkets and Frozen Beverages. All inter-segment net sales and expenses have been eliminated in computing net sales and operating income. These segments are described below.below.
Food Service
The primary products sold by the food service groupsegment are soft pretzels, frozen juice treats and desserts,novelties, churros, dough enrobed handheld products and baked goods. Our customers in the food service industrysegment include snack bars and food stands in chain, department and discount stores; malls and shopping centers; casual dining restaurants, 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 dessertsnovelties 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.products. Within the retail supermarket channel, our frozen and prepackaged products are purchased by the consumer for consumption at home.
Frozen Beverages
We sellThe Company markets frozen beverages and related products to the food service industry primarily under the names ICEE, SLUSH PUPPIE and PARROT ICE which are sold primarily 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 reviews 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 MakersMaker and management when determining each segment’s, and the company’sCompany’s, financial condition and operating performance. In addition, the Chief Operating Decision Makers reviewMaker reviews and evaluateevaluates 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 | Three Months Ended | Six Months Ended | ||||||||||||||||||||||
December 30, | December 24, | March 26, | March 27, | March 26, | March 27, | |||||||||||||||||||
2017 | 2016 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
Sales to External Customers: | ||||||||||||||||||||||||
Sales to external customers: | ||||||||||||||||||||||||
Food Service | ||||||||||||||||||||||||
Soft pretzels | $ | 50,131 | $ | 41,494 | $ | 43,261 | $ | 36,776 | $ | 93,682 | $ | 69,463 | ||||||||||||
Frozen juices and ices | 7,184 | 7,479 | ||||||||||||||||||||||
Frozen novelties | 7,305 | 10,590 | 15,762 | 16,885 | ||||||||||||||||||||
Churros | 14,592 | 14,438 | 17,447 | 14,720 | 36,936 | 26,262 | ||||||||||||||||||
Handhelds | 10,252 | 7,479 | 20,506 | 19,992 | 39,001 | 37,603 | ||||||||||||||||||
Bakery | 94,933 | 75,279 | 83,967 | 82,910 | 191,798 | 171,874 | ||||||||||||||||||
Other | 5,172 | 4,128 | 3,854 | 4,336 | 10,893 | 7,662 | ||||||||||||||||||
Total Food Service | $ | 182,264 | $ | 150,297 | $ | 176,340 | $ | 169,324 | $ | 388,072 | $ | 329,749 | ||||||||||||
Retail Supermarket | ||||||||||||||||||||||||
Soft pretzels | $ | 10,512 | $ | 8,944 | $ | 15,752 | $ | 15,789 | $ | 31,946 | $ | 29,677 | ||||||||||||
Frozen juices and ices | 9,727 | 9,851 | ||||||||||||||||||||||
Frozen novelties | 18,919 | 19,386 | 36,721 | 34,702 | ||||||||||||||||||||
Biscuits | 5,687 | 6,495 | 13,958 | 14,155 | ||||||||||||||||||||
Handhelds | 3,026 | 3,450 | 1,069 | 2,243 | 2,345 | 5,023 | ||||||||||||||||||
Coupon redemption | (751 | ) | (1,259 | ) | (726 | ) | (608 | ) | (1,622 | ) | (1,683 | ) | ||||||||||||
Other | 562 | 633 | 56 | 601 | 104 | 1,126 | ||||||||||||||||||
Total Retail Supermarket | $ | 23,076 | $ | 21,619 | $ | 40,757 | $ | 43,906 | $ | 83,452 | $ | 83,000 | ||||||||||||
Frozen Beverages | ||||||||||||||||||||||||
Beverages | $ | 34,303 | $ | 28,276 | $ | 35,365 | $ | 18,529 | $ | 69,128 | $ | 34,384 | ||||||||||||
Repair and maintenance service | 19,004 | 18,091 | 21,000 | 18,218 | 43,011 | 37,114 | ||||||||||||||||||
Machines sales | 6,313 | 7,039 | ||||||||||||||||||||||
Machines revenue | 7,542 | 5,663 | 15,389 | 12,152 | ||||||||||||||||||||
Other | 250 | 248 | 509 | 538 | 951 | 776 | ||||||||||||||||||
Total Frozen Beverages | $ | 59,870 | $ | 53,654 | $ | 64,416 | $ | 42,948 | $ | 128,479 | $ | 84,426 | ||||||||||||
Consolidated Sales | $ | 265,210 | $ | 225,570 | ||||||||||||||||||||
Consolidated sales | $ | 281,513 | $ | 256,178 | $ | 600,003 | $ | 497,175 | ||||||||||||||||
Depreciation and Amortization: | ||||||||||||||||||||||||
Depreciation and amortization: | ||||||||||||||||||||||||
Food Service | $ | 7,098 | $ | 5,732 | $ | 6,670 | $ | 7,116 | $ | 13,339 | $ | 13,902 | ||||||||||||
Retail Supermarket | 290 | 278 | 386 | 384 | 752 | 770 | ||||||||||||||||||
Frozen Beverages | 4,598 | 3,901 | 5,484 | 5,648 | 10,960 | 11,424 | ||||||||||||||||||
Total Depreciation and Amortization | $ | 11,986 | $ | 9,911 | ||||||||||||||||||||
Total depreciation and amortization | $ | 12,540 | $ | 13,148 | $ | 25,051 | $ | 26,096 | ||||||||||||||||
Operating Income : | ||||||||||||||||||||||||
Operating income: | ||||||||||||||||||||||||
Food Service | $ | 15,900 | $ | 17,054 | $ | 536 | $ | 6,055 | $ | 9,537 | $ | 12,235 | ||||||||||||
Retail Supermarket | 2,558 | 1,046 | 1,091 | 6,364 | 6,075 | 11,087 | ||||||||||||||||||
Frozen Beverages | 2,770 | 1,227 | 2,461 | (5,189 | ) | 3,321 | (15,514 | ) | ||||||||||||||||
Total Operating Income | $ | 21,228 | $ | 19,327 | ||||||||||||||||||||
Total operating income | $ | 4,088 | $ | 7,230 | $ | 18,933 | $ | 7,808 | ||||||||||||||||
Capital Expenditures: | ||||||||||||||||||||||||
Capital expenditures: | ||||||||||||||||||||||||
Food Service | $ | 9,441 | $ | 6,587 | $ | 13,851 | $ | 7,246 | $ | 24,084 | $ | 15,532 | ||||||||||||
Retail Supermarket | - | 82 | 1,094 | 80 | 3,623 | 101 | ||||||||||||||||||
Frozen Beverages | 5,182 | 4,730 | 4,261 | 1,827 | 7,599 | 3,196 | ||||||||||||||||||
Total Capital Expenditures | $ | 14,623 | $ | 11,399 | ||||||||||||||||||||
Total capital expenditures | $ | 19,206 | $ | 9,153 | $ | 35,306 | $ | 18,829 | ||||||||||||||||
Assets: | ||||||||||||||||||||||||
Food Service | $ | 635,988 | $ | 594,963 | $ | 799,710 | $ | 760,557 | $ | 799,710 | $ | 760,557 | ||||||||||||
Retail Supermarket | 21,531 | 22,128 | 33,206 | 33,395 | 33,206 | 33,395 | ||||||||||||||||||
Frozen Beverages | 207,498 | 177,082 | 290,412 | 270,963 | 290,412 | 270,963 | ||||||||||||||||||
Total Assets | $ | 865,017 | $ | 794,173 | ||||||||||||||||||||
Total assets | $ | 1,123,328 | $ | 1,064,915 | $ | 1,123,328 | $ | 1,064,915 |
Note 10 | Our |
The carrying amounts of acquired intangible assets for the Food Service, Retail Supermarkets and Frozen Beverage segments as of December 30, 2017 March 26, 2022 and September 30, 2017 25, 2021 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 |
March 26, 2022 | September 25, 2021 | |||||||||||||||
Gross | Gross | |||||||||||||||
Carrying | Accumulated | Carrying | Accumulated | |||||||||||||
Amount | Amortization | Amount | Amortization | |||||||||||||
(in thousands) | ||||||||||||||||
FOOD SERVICE | ||||||||||||||||
Indefinite lived intangible assets | ||||||||||||||||
Trade names | $ | 9,596 | $ | 0 | $ | 10,408 | $ | 812 | ||||||||
Amortized intangible assets | ||||||||||||||||
Non compete agreements | 670 | 670 | 670 | 670 | ||||||||||||
Customer relationships | 13,000 | 6,838 | 13,000 | 6,188 | ||||||||||||
License and rights | 1,690 | 1,438 | 1,690 | 1,396 | ||||||||||||
TOTAL FOOD SERVICE | $ | 24,956 | $ | 8,946 | $ | 25,768 | $ | 9,066 | ||||||||
RETAIL SUPERMARKETS | ||||||||||||||||
Indefinite lived intangible assets | ||||||||||||||||
Trade names | $ | 12,316 | $ | 0 | $ | 12,777 | $ | 461 | ||||||||
Amortized intangible Assets | ||||||||||||||||
Trade names | 649 | 649 | 649 | 649 | ||||||||||||
Customer relationships | 7,907 | 6,308 | 7,907 | 5,931 | ||||||||||||
TOTAL RETAIL SUPERMARKETS | $ | 20,872 | $ | 6,957 | $ | 21,333 | $ | 7,041 | ||||||||
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 | 473 | 1,439 | 400 | ||||||||||||
Licenses and rights | 1,400 | 1,107 | 1,400 | 1,072 | ||||||||||||
TOTAL FROZEN BEVERAGES | $ | 48,254 | $ | 1,580 | $ | 48,254 | $ | 1,472 | ||||||||
CONSOLIDATED | $ | 94,082 | $ | 17,483 | $ | 95,355 | $ | 17,579 |
AmortizedAmortizing intangible assets are being amortized by the straight-line method over periods ranging from 32 to 20 years and amortization expense is reflected throughout operating expenses. In last year’s fiscal year, intangible assets of $6,957,000 were acquired in an ICEE distributor acquisition in our frozen beverage segment, intangible assets of $15,760,000 were acquired in the Hill & Valley acquisition in our food service segment and intangible assets fo $576,000 were acquired in the Labriola Baking acquisition, also in our food service segment. Aggregate amortization expense of intangible assets for the three months ended December 30, 2017 March 26, 2022 and December 24, 2016 March 27, 2021 was $819,000$594,000 and $1,108,000,$777,000, respectively. Aggregate amortization expense of intangible assets for the six months ended March 26, 2022 and March 27, 2021 was $1,174,000 and $1,457,000, respectively.
Estimated amortization expense for the next five fiscal years is approximately $3,500,000 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, $1,400,000 in 2025, and $1,400,000 in 2026.
The weighted amortization period of the intangible assets, in total, is 10.811.2 years. The weighted amortization period by intangible asset class is 10.0 years for Customer relationships and 20.0 years for Licenses & rights.
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 26, 2022 | $ | 61,189 | $ | 4,146 | $ | 56,498 | $ | 121,833 | ||||||||
Balance at September 25, 2021 | $ | 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 26, 2022 are summarized as follows:
Gross | Gross | Fair | ||||||||||||||
Amortized | Unrealized | Unrealized | Market | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(in thousands) | ||||||||||||||||
Corporate Bonds | $ | 125,591 | $ | 165 | $ | 551 | $ | 125,205 | ||||||||
Certificates of Deposit | 5,920 | 8 | - | 5,928 | ||||||||||||
Total marketable securities held to maturity | $ | 131,511 | $ | 173 | $ | 551 | $ | 131,133 |
Gross | Gross | Fair | ||||||||||||||
Amortized | Unrealized | Unrealized | Market | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(in thousands) | ||||||||||||||||
Corporate bonds | $ | 4,530 | $ | 2 | $ | 59 | $ | 4,473 | ||||||||
Total marketable securities held to maturity | $ | 4,530 | $ | 2 | $ | 59 | $ | 4,473 |
The amortized cost, unrealized gains and losses, and fair market values of our investment securities available for sale at December 30, 2017 March 26, 2022 are summarized as follows:
Gross | Gross | Fair | ||||||||||||||
Amortized | Unrealized | Unrealized | Market | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(in thousands) | ||||||||||||||||
Mutual Funds | $ | 13,003 | $ | 58 | $ | 237 | $ | 12,824 | ||||||||
Preferred Stock | 16,791 | 608 | 73 | 17,326 | ||||||||||||
Total marketable securities available for sale | $ | 29,794 | $ | 666 | $ | 310 | $ | 30,150 |
Gross | Gross | Fair | ||||||||||||||
Amortized | Unrealized | Unrealized | Market | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(in thousands) | ||||||||||||||||
Mutual funds | $ | 3,588 | $ | 0 | $ | 549 | $ | 3,039 | ||||||||
Preferred stock | 2,816 | 96 | 0 | 2,912 | ||||||||||||
Total marketable securities available for sale | $ | 6,404 | $ | 96 | $ | 549 | $ | 5,951 |
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, 2019 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 20172022 through 2021,2023, with $123$4.5 million maturing within 3 years.the next 12 months. 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 25, 2021 are summarized as follows:
Gross | Gross | Fair | ||||||||||||||
Amortized | Unrealized | Unrealized | Market | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
| (in thousands) | |||||||||||||||
Corporate Bonds | $ | 114,101 | $ | 424 | $ | 155 | $ | 114,370 | ||||||||
Certificates of Deposit | 5,920 | 18 | 1 | 5,937 | ||||||||||||
Total marketable securities held to maturity | $ | 120,021 | $ | 442 | $ | 156 | $ | 120,307 |
Gross | Gross | Fair | ||||||||||||||
Amortized | Unrealized | Unrealized | Market | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(in thousands) | ||||||||||||||||
Corporate bonds | 12,027 | 123 | 18 | 12,132 | ||||||||||||
Total marketable securities held to maturity | $ | 12,027 | $ | 123 | $ | 18 | $ | 12,132 |
The amortized cost, unrealized gains and losses, and fair market values of our investment securities available for sale at September 30, 2017 25, 2021 are summarized as follows:
Gross | Gross | Fair | ||||||||||||||
Amortized | Unrealized | Unrealized | Market | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(in thousands) | ||||||||||||||||
Mutual Funds | $ | 13,003 | $ | 77 | $ | 240 | $ | 12,840 | ||||||||
Preferred Stock | 16,791 | 711 | 82 | 17,420 | ||||||||||||
Total marketable securities available for sale | $ | 29,794 | $ | 788 | $ | 322 | $ | 30,260 |
Gross | Gross | Fair | ||||||||||||||
Amortized | Unrealized | Unrealized | Market | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(in thousands) | ||||||||||||||||
Mutual funds | $ | 3,588 | $ | 0 | $ | 536 | $ | 3,052 | ||||||||
Preferred stock | 6,892 | 175 | 35 | 7,032 | ||||||||||||
Total marketable securities available for sale | $ | 10,480 | $ | 175 | $ | 571 | $ | 10,084 |
The amortized cost and fair value of the Company’sCompany’s held to maturity securities by contractual maturity at December 30, 2017 March 26, 2022 and September 30, 2017 25, 2021 are summarized as follows:
September 24, 2011 | December 30, 2017 | September 30, 2017 | ||||||||||||||
Fair | Fair | |||||||||||||||
Amortized | Market | Amortized | Market | |||||||||||||
Cost | Value | Cost | Value | |||||||||||||
(in thousands) | ||||||||||||||||
Due in one year or less | $ | 49,445 | $ | 49,444 | $ | 59,113 | $ | 59,194 | ||||||||
Due after one year through five years | 82,066 | 81,689 | 60,908 | 61,113 | ||||||||||||
Due after five years through ten years | - | - | ||||||||||||||
Total held to maturity securities | $ | 131,511 | $ | 131,133 | $ | 120,021 | $ | 120,307 | ||||||||
Less current portion | 49,445 | 49,444 | 59,113 | 59,194 | ||||||||||||
Long term held to maturity securities | $ | 82,066 | $ | 81,689 | $ | 60,908 | $ | 61,113 |
March 26, 2022 | September 25, 2021 | |||||||||||||||
Fair | Fair | |||||||||||||||
Amortized | Market | Amortized | Market | |||||||||||||
Cost | Value | Cost | Value | |||||||||||||
(in thousands) | ||||||||||||||||
Due in one year or less | $ | 4,530 | $ | 4,473 | $ | 7,980 | $ | 8,080 | ||||||||
Due after one year through five years | - | - | 4,047 | 4,052 | ||||||||||||
Total held to maturity securities | $ | 4,530 | $ | 4,473 | $ | 12,027 | $ | 12,132 | ||||||||
Less current portion | 4,530 | 4,473 | 7,980 | 8,080 | ||||||||||||
Long term held to maturity securities | $ | - | $ | - | $ | 4,047 | $ | 4,052 |
Proceeds from the redemption and sale of marketable securities were $19,096,000$4,326,000 and $11,526,000 in the three and six months ended December 30, 2017 March 26, 2022 and $475,000were $15,189,000 and $41,337,000 in the three and six months ended December 24, 2016, March 27, 2021, respectively. GainsLosses of $7,558$25,000 and $69,000 were recorded in the three and six months ended December 30, 2017 March 26, 2022, and no gains or lossesa gain of $41,000 and $119,000 were recorded in the three and six months ended December 24, 2016.March 27, 2021. Included in the gains and losses were unrealized losses of $58,000 and unrealized gains of $649,000 in the six months ended March 26, 2022 and March 27, 2021, respectively. Unrealized losses of $53,000 and $46,000 were recorded in the three months ended March 26, 2022, and March 27, 2021, respectively. We use the specific identification method to determine the cost of securities sold.
Note 12 ChangesTotal marketable securities held to the componentsmaturity as of accumulated other comprehensive loss are as follows:March 26, 2022, with credit ratings of BBB/BB/B had an amortized cost basis totaling $4,530,000. This rating information was obtained March 31, 2022.
Note 12 | Changes to the components of accumulated other comprehensive loss are as follows: |
Three Months Ended | Six Months Ended | |||||||
March 26, 2022 | March 26, 2022 | |||||||
Foreign Currency | Foreign Currency | |||||||
Translation | Translation | |||||||
Adjustments | Adjustments | |||||||
(unaudited) (in thousands) | (unaudited) (in thousands) | |||||||
Beginning balance | $ | (13,827 | ) | $ | (13,383 | ) | ||
Other comprehensive income | 546 | 102 | ||||||
Ending balance | $ | (13,281 | ) | $ | (13,281 | ) |
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 | ||||||||||||
(unaudited) | ||||||||||||
(in thousands) | ||||||||||||
Unrealized Holding | ||||||||||||
Foreign Currency | Loss on | |||||||||||
Translation Adjustments | Marketable Securities | Total | ||||||||||
Beginning Balance | $ | (13,086 | ) | $ | (329 | ) | $ | (13,415 | ) | |||
Other comprehensive(loss)income before reclassifications | (1,104 | ) | (103 | ) | (1,207 | ) | ||||||
Amounts reclassified from accumulated other comprehensive income | - | - | - | |||||||||
Ending Balance | $ | (14,190 | ) | $ | (432 | ) | $ | (14,622 | ) |
Three Months Ended | Six Months Ended | |||||||
March 27, 2021 | March 27, 2021 | |||||||
Foreign Currency | Foreign Currency | |||||||
Translation | Translation | |||||||
Adjustments | Adjustments | |||||||
(unaudited) (in thousands) | (unaudited) (in thousands) | |||||||
Beginning balance | $ | (13,308 | ) | $ | (15,587 | ) | ||
Other comprehensive (loss) income | (531 | ) | 1,748 | |||||
Ending balance | $ | (13,839 | ) | $ | (13,839 | ) |
Note 13 – Leases
General Lease Description
We have operating leases with initial noncancelable lease terms in excess of one year covering the rental of various facilities and equipment. Certain of these leases contain renewal options and some provide options to purchase during the lease term. Our operating leases include leases for real estate for some of our office and manufacturing facilities as well as manufacturing and non-manufacturing equipment used in our business. The remaining lease terms for these operating leases range from 1 month to 13 years.
We have finance leases with initial noncancelable lease terms in excess of one year covering the rental of various equipment. These leases are generally for manufacturing and non-manufacturing equipment used in our business. The remaining lease terms for these finance leases range from 1 year to 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 a lease-by-lease basis, we have determined if the extension should be considered reasonably certain to be exercised and thus a right-of-use asset and a lease liability should be recorded.
Discount Rate
The discount rate for leases, if not explicitly stated in the lease, is the incremental borrowing rate, which is the rate of 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 a similar economic environment.
We used the discount rate to calculate the present value of the lease liability at the date of adoption. In the development of the discount rate, we considered our incremental borrowing rate as provided by our lender which was based on cash collateral and credit risk specific to us, and our lease portfolio characteristics.
As of March 26, 2022, the weighted-average discount rate of our operating and finance leases was 3.3% and 3.2%, respectively. 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 | Three Months Ended | Six Months Ended | Six Months Ended | |||||||||||||
March 26, 2022 | March 27, 2021 | March 26, 2022 | March 27, 2021 | |||||||||||||
(in thousands) | (in thousands) | (in thousands) | (in thousands) | |||||||||||||
Operating lease cost in cost of goods sold and operating expenses | $ | 3,922 | $ | 3,962 | $ | 7,920 | $ | 7,901 | ||||||||
Finance lease cost: | ||||||||||||||||
Amortization of assets in cost of goods sold and operating expenses | 50 | 78 | 122 | 154 | ||||||||||||
Interest on lease liabilities in Interest expense & other | 2 | 11 | 7 | 25 | ||||||||||||
Total finance lease cost | $ | 52 | $ | 89 | $ | 129 | $ | 179 | ||||||||
Short-term lease cost in cost of goods sold and operating expenses | 0 | 0 | 0 | 0 | ||||||||||||
Total net lease cost | $ | 3,974 | $ | 4,051 | $ | 8,049 | $ | 8,080 |
Supplemental balance sheet information related to leases is as follows: |
March 26, 2022 | September 25, 2021 | |||||||
(in thousands) | (in thousands) | |||||||
Operating Leases | ||||||||
Operating lease right-of-use assets | $ | 53,892 | $ | 54,555 | ||||
Current operating lease liabilities | $ | 13,747 | $ | 13,395 | ||||
Noncurrent operating lease liabilities | 45,501 | 46,557 | ||||||
Total operating lease liabilities | $ | 59,248 | $ | 59,952 | ||||
Finance Leases | ||||||||
Finance lease right-of-use assets in property, plant and equipment, net | $ | 0 | $ | 561 | ||||
Current finance lease liabilities | $ | 127 | $ | 182 | ||||
Noncurrent finance lease liabilities | 336 | 392 | ||||||
Total finance lease liabilities | $ | 463 | $ | 574 |
Supplemental cash flow information related to leases is as follows: |
Three Months Ended | Three Months Ended | Six Months Ended | Six Months Ended | |||||||||||||
March 26, 2022 | March 27, 2021 | March 26, 2022 | March 27, 2021 | |||||||||||||
(in thousands) | (in thousands) | (in thousands) | (in thousands) | |||||||||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||||
Operating cash flows from operating leases | $ | 3,970 | $ | 4,001 | $ | 8,008 | $ | 7,987 | ||||||||
Operating cash flows from finance leases | $ | 2 | $ | 87 | $ | 7 | $ | 173 | ||||||||
Financing cash flows from finance leases | $ | 37 | $ | 11 | $ | 111 | $ | 25 | ||||||||
Supplemental noncash information on lease liabilities arising from obtaining right-of-use assets | $ | 5,922 | $ | 578 | $ | 7,065 | $ | 1,354 | ||||||||
Supplemental noncash information on lease liabilities removed due to purchase of leased asset | $ | - | $ | - | $ | - | $ | - |
As of March 26, 2022, the maturities of lease liabilities were as follows: |
(in thousands) | ||||||||
Operating Leases | Finance Leases | |||||||
Six months ending September 24, 2022 | $ | 7,924 | $ | 68 | ||||
2023 | 14,304 | 136 | ||||||
2024 | 11,663 | 136 | ||||||
2025 | 8,266 | 65 | ||||||
2026 | 5,354 | 39 | ||||||
Thereafter | 18,419 | 33 | ||||||
Total minimum payments | $ | 65,930 | $ | 477 | ||||
Less amount representing interest | (6,682 | ) | (14 | ) | ||||
Present value of lease obligations | $ | 59,248 | $ | 463 |
Note |
|
On May 22, 2017, we acquired an ICEE distributor doing business in GeorgiaItem 2. Management’s Discussion and Tennessee for approximately $11 million. Analysis of Financial Condition and Results of Operations
On August 16, 2017, we acquired Labriola Baking Company, a bakery 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 breadsSection 27A of the Securities Act of 1933 (the “Act”) and artisan soft pretzels locatedSection 21E of the Securities Exchange Act of 1934 “the “Exchange Act”. These statements often can be identified by the use of terms such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” “approximate,” “intend” or “continue,” or the negative thereof. We intend that such forward-looking statements be subject to the safe harbors of the Act and the Exchange Act. 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 Alsip, IL for approximately $6 million. Labriola Bakery, with salesthe future. However, forward-looking statements are subject to risks, uncertainties, assumptions, and important factors beyond our control that could cause actual results and events to differ materially from historical results of approximately $17 million annually, is a manufactureroperations 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 pre-baked breads, rolls and soft pretzels for retail in-store bakery and foodservice outlets nationwide.such statement or to reflect the occurrence of anticipated or unanticipated events.
|
|
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 for certain products marketed under the name “MARY B’s Biscuits,” which have the potential to be contaminated with Listeria monocytogenes. The affected products were manufactured by Flowers Foods, Inc. (“Flowers”), and the Company is working in coordination with Flowers and the U.S. Food and Drug Administration to effectuate the recall. We believe that Flowers, the manufacturer of the recalled product and initiator of the recall, is contractually obligated to indemnify us against all costs 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.
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Liquidity and Capital Resources
Our current cash and cash equivalents balances, investments and cash expected to be provided by future operations are our primary sources of liquidity. We believe that these sources, along with our borrowing capacity, are sufficient to fund future growth and expansion. See Note 11 to these financial statements for a discussion of our investment securities.
The Company’s Board of Directors declared a regular quarterly cash dividend of $.45$0.633 per share of its common stock payable on January 4, 2018,April 12, 2022, to shareholders of record as of the close of business on December 13, 2017.March 22, 2022.
In our fiscal year ended September 30, 2017, we purchased and retired 142,665 shares of our common stock at a cost of $18,228,763. In the three months ended December 30, 2017 we did not purchase and retire any shares. 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. We did not purchase any shares of our common stock in the six months ended March 26, 2022, nor did we purchase any shares of our common stock in fiscal year 2021.
In the three months ended December 30, 2017March 26, 2022 and December 24, 2016March 27, 2021, 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 a decrease of $546,000 and an increase of $3,887,000$531,000 in accumulated other comprehensive loss, respectively. In the six months ended March 26, 2022 and March 27, 2021, fluctuations in the 2018 first quartervaluation of the Mexican and an increaseCanadian currencies and the resulting translation of $1,104,000the net assets of our Mexican and Canadian subsidiaries caused a decrease of $102,000 and $1,748,000 in accumulated other comprehensive loss, in the 2017 first quarter.respectively.
Our general-purpose bank credit lineIn December 2021, we entered into an amendment and modification to an amended and restated loan agreement with our existing banks which expires in November 2021 provides for up to a $50,000,000 revolving credit facility.facility repayable in December 2026. 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 26, 2022 or at September 25, 2021.
Critical Accounting Policies, Judgments and Estimates
There have been no material changes to our critical accounting policies, judgments and estimates from the information provided in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies, Judgments and Estimates, in our Annual Report on Form 10-K for the year ended September 25, 2021, as filed with the SEC on November 23, 2021.
RESULTS OF OPERATIONS
Net sales increased $39,640,000 or 18%by 10% to $265,210,000$281,513,000 in the second quarter and by 21% to $600,003,000 for the threesix months ended December 30, 2017March 26, 2022 compared to the three and six months ended December 24, 2016. ExcludingMarch 27, 2021, respectively. Net sales from Hill & Valley, Inc., acquired in January 2017, an ICEE distributor locatedour fiscal second quarter were negatively impacted by unexpected challenges related to our early February implementation of a new enterprise resource planning (“ERP”) system. We experienced operational and supply chain challenges due to this implementation and estimated that these issues resulted in the Southeast acquired in June 2017a negative, one-time impact, on fiscal second quarter sales of approximately $20 million, all within our Food Service and Labriola Bakery which was acquired in August 2017, sales increased approximately 7% for the quarter.Retail segments.
FOOD SERVICE
Sales to food service customers increased $ 31,967,000by 4% in the second quarter to $176,340,000 and by 18% to $388,072,000 for the six months, compared to respective prior year periods. Sales were up across most product lines as many of the venues and locations where our products are sold that were previously shut down or 21%operating at reduced capacity in the first quarter to $182,264,000. Excluding salesand second quarters of Hill & Valley and Labriola, sales increased $9,569,0002021 have partially or 6% forfully re-opened in the first quarter. and second quarters of 2022. Customer venues including theaters, stadiums, amusement parks, schools, restaurants and strategic accounts continued to experience an increase in foot traffic and visitation, which helped drive strong sales in our core products.
Soft pretzel sales to the food service market increased 21%by 18% to $50,131,000$43,261,000 in the second quarter and about 14% without Labriola sales. In additionby 35% to Labriola sales, soft pretzel sales increased significantly due$93,682,000 in the six months compared to increased distribution to restaurant chains and movie theatres and we had strong sales of our recently introduced BRAUHAUS pretzels.
respective prior year periods. Frozen juices and icesnovelties sales decreased 4%by 31% to $7,184,000$7,305,000 in the threesecond quarter and decreased by 7% to $15,762,000 in the six months with sales increases and decreases across our customer base.
compared to respective prior year periods. Churro sales to food service customers were up 1%increased by 19% to 17,447,000 in the second quarter and increased by 41% to $14,592,000.
$36,936,000 in the six months compared to respective prior year periods. Sales of bakery products increased $19,654,000 or 26%by 1% in the firstsecond quarter to $94,933,000. Excluding sales of Hill & Valley, bakery sales were essentially flat$83,967,000 and increased 12% to $191,798,000 for the quarter.
six months compared to respective prior year periods. Sales of handhelds increased $2,773,000 or 37%3% in the second quarter with all of the increase coming from sales to three customers. Sales of funnel cake increased $911,000 or 23%$20,506,000 and by 4% to $39,001,000 in the quartersix months compared to $4,794,000 as we continue to increase sales to school food service.respective prior year periods.
Sales of new products in the first twelve months since their introduction were approximately $8 million$2,000,000 in this quarter.the second quarter and $4,000,000 in the six months, driven primarily by new bakery items, including a new empanada product with a major convenience customer. Price increases had noa marginal impact on sales in the quarter and netwere somewhat offset by the volume increases, including new product sales as defined above and Hill & Valley and Labriola sales, accounted for approximately $32 million of sales indecreases attributable to the quarter.negative impacts associated with the ERP implementation.
OperatingCompared to prior year, operating income in our Food Service segment decreased from $17,054,000by 91% to $15,900,000$536,000 in the quarter. Hill & Valley contributed $1,384,000second quarter and by 22% to operating income$9,537,000 in the quarter; however, operating incomesix months reflecting the significant increase in ingredients, production and shipping costs as well as the balance ofimpacts related to our food service business was impacted by generally higher costs for payroll 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. ERP implementation.
RETAIL SUPERMARKETS
SalesCompared to prior year, sales of products to retail supermarkets increased $1,457,000 ordecreased by 7% to $23,076,000$40,757,000 in the first quarter. Soft pretzelsecond quarter and increased by 1% to $83,452,000 in the six months. Our SUPERPRETZEL brand has performed well helping to drive an 8% increase in sales forof soft pretzels in the firstsix months to $31,946,000 despite sales in the second quarter were up 18% to $10,512,000 primarilyremaining relatively flat due to sales of AUNTIE ANNE’S soft pretzels under a license agreement entered into in 2017.the impacts related to our ERP implementation. Sales of frozen juicesnovelties decreased by 2% to $18,919,000 in the second quarter, but increased by 6% to $36,721,000 in the six months compared to respective prior year periods. Sales of biscuits decreased by 12% to $5,687,000 in the second quarter and ices decreased $124,000 orby 1% to $9,727,000$13,958,000 in the first quarter.six months compared to respective prior year periods. Handheld sales to retail supermarket customers decreased 12%by 52% to $3,026,000$1,069,000 in the second quarter asand by 53% to $2,345,000 in the sales of this product line continues their long term decline.six months compared to respective prior year periods.
Sales of new products in the first quarter were approximately $1.9 million.$500,000 for the three and six months ended, and were primarily related to frozen novelty items. Price increases had noa minimal impact on sales 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, and this increase was more than offset by the volume decreases attributable to the negative impacts associated with the ERP implementation.
OperatingCompared to prior year periods, operating income in our Retail Supermarkets segment was $2,558,000decreased by 83% to $1,091,000 in this year’s firstthe second quarter comparedand by 45% to $1,046,000$6,075,000 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 increasesix months. The decreases in operating income.income were primarily attributable to higher cost of goods sold as well as the impacts related to our ERP implementation.
FROZEN BEVERAGES
FrozenCompared to prior year periods, frozen beverage and related product sales increased 12%by 50% to $59,870,000$64,416,000 in the firstsecond quarter and excluding sales ofby 52% to $128,479,000 in the acquired ICEE distributor were up about 10%.six months. Beverage related sales aloneincreased by 91% to $35,365,000 in the second quarter and by 101% to $69,128,000 in the six months compared to respective prior year periods. Gallon sales were up 21% to $34,303,00088% in the quarter and were up about 19% without98% in the six months compared to respective prior year periods. The increase in gallon sales ofreflects the acquired ICEE distributor. Gallon sales were up 15% forgrowing momentum across theaters, amusement parks, convenience, and restaurant channels. In the three months with higher salesamusement parks channel, we continue to movie theatres and across our customer base.see strong growth as visitation numbers continue to exceed pre-Covid levels. Service revenue increased 5%by 15% to $19,004,000$21,000,000 in the firstsecond quarter withand by 16% to $43,011,000 in the six months, compared to respective prior year periods, led by an acceleration in maintenance calls and additional growth in one of our larger customers. Machines revenue (primarily sales increasesof frozen beverage machines) increased by 33% to $7,542,000 in the second quarter and decreases spread throughout our customer base.by 27% to $15,389,000 in the six months, compared to respective prior year periods, driven mainly by growth from large quick service restaurant (QSR) and convenience customers.
SalesOur Frozen Beverage segment had operating income of beverage machines, which tend to fluctuate from$2,461,000 in the second quarter compared with an operating loss of $5,189,000 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 increased to $2,770,000had operating income of $3,321,000 compared with an operating loss of $15,514,000 in this quarter compared to $1,227,000 lastthe prior year assix-month period. The comparative performance was primarily a result of significantly higher beverage sales.sales volume which drove leverage across the business.
CONSOLIDATED
Gross profit as a percentage of sales was 27.63%23.2% in the three monththree-month period this year and 29.21%23.8% last year. About 20%Gross profit as a percentage of the gross profit percentage decreasesales was 24.1% in the six-month period this year and 22.3% last year. Inflation continued to build over the quarter resulted from the lower gross profit percentage of the Hill & Valley business.and six-month period which has significantly pressured margins. The balance of the decreaseimpact was caused by higher costs for payrollespecially pronounced in key raw material purchases like flour, eggs, dairy, chocolates and insurance, inefficienciesmeats, as well as packaging and fuel. We have pricing and cost initiatives 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 pricingplace to offset these higher costs. cost pressures, though we do not expect to see most of the benefits on gross profit until later in the fiscal year.
Total operating expenses increased $5,483,000by 14% to $61,260,000 in the firstsecond quarter but asand by 22% to $125,790,000 in the six months compared to respective prior year periods. As a percentage of net sales, operating expenses increased from 20.9% to 21.8% in the second quarter and from 20.8% to 21.0% in the six months.
Marketing expenses remained flat at 7.5% of net sales in the second quarter and decreased to 19.6%7.0% in the six months compared with 7.3% in prior year’s six-month period. Distribution expenses increased to 10.1% of net sales in the second quarter from 20.6% last year. Marketing9.9% in the prior year and to 10.3% in the six months compared with 9.7% in prior year’s six-month period. Administrative expenses increased to 4.2% of net sales in the second quarter from 3.6% in prior year but decreased to 8.14% of sales in this year’s quarter from 9.01% last year primarily because of lower media spending in our retail supermarket business and lower marketing expenses of the acquired Hill & Valley and Labriola businesses. Distribution expenses were 7.98% of sales in this year’s quarter and 8.05% of sales in last year’s quarter. Administrative expenses were 3.53% of sales this quarter compared to 3.59% of sales last year3.7% in the first quartersix months compared with 3.8% in prior year’s six-month period.
OperatingCompared to prior year, operating income increased $1,901,000 or 10%decreased by 43% to $21,228,000$4,088,000 in the firstsecond quarter but increased by 142% to $18,933,000 in the six months as a result of the aforementioned items.
InvestmentOur investments generated before tax income of $160,000 in the second quarter, a $419,000 decrease over prior year. In the six months, our investments generated before tax income of $431,000, a 78% decrease from the prior year period. The decrease in before tax investment income compared with prior year was primarily due to decreases in the amount of investments.
Compared to prior year, net earnings decreased by 46% to $3,271,000 in the second quarter but increased by $262,00083% to $14,362,000 in the first quarter resulting from higher amounts invested and slightly higher interest rates.
Other income this quarter includes a $520,000 gain on a sale of property.
Net earnings increased $22,709,000, or 168%, in the current three month period to $36,249,000. Net earnings for the current year quarter benefited from a $20.9 million, or $1.11 per diluted share, gain on the remeasurement of deferred tax liabilities and a $2.0 million, or $0.11 per diluted share, reduction in income taxes related primarily to the lower corporate tax rate enacted under the Tax Cuts and Jobs Act in December 2017. Net earnings were 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 decreasedwas 26% in the six months compared with 20% in the prior year’s six- month period, as prior year’s six-month period effective tax rate was favorably impacted by tax benefits related to 28.6% from 34.0%share-based compensation. Our effective tax rate was 22% in the second quarter and was also 22% in the prior year second quarter, reflectingas both were favorably impacted by the reduction in the federal statutory ratetax benefits related 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.share-based compensation.
There are many factors which can impact our net earnings from year to year and in the long run, among which are the supply and cost of raw materials and labor, insurance costs, factors impacting sales as noted above, the continuing consolidation of our customers, our ability to manage our manufacturing, marketing and distribution activities, our ability to make and integrate acquisitions and changes in tax laws and interest rates.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
There has been no material change in the Company’sCompany’s assessment of its sensitivity to market risk since its presentation set forth, in item 7a. “Quantitative and Qualitative Disclosures About Market Risk,” in its 20172021 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,March 26, 2022, 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 26, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 6. | Exhibits |
Exhibit No.
31.1 | ||
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of | ||
31.2 | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1 | ||
Certification Pursuant to the 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of |
32.2 |
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 containing 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.
Dated: May 5, 2022 |
| ||
| /s/ | Dan Fachner | |
| |||
| |||
President and Chief Executive Officer | |||
(Principal Executive Officer) |
Dated: May 5, 2022 | /s/ Ken A. Plunk | ||
Ken A. Plunk, Senior Vice | |||
President and Chief Financial Officer
| |||
(Principal Financial Officer)
| |||
(Principal Accounting Officer) |
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