UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the period ended June 27, 202026, 2021
or
☐ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File Number: 0-14616
J&J 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, New Jersey 08109
(Address of principal executive offices)
Telephone (856) 665-9533
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||
Common Stock, no par value | JJSF | The NASDAQ Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒ | Yes | ☐ | No |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
☒ | Yes | ☐ | No |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated filer | ☒ | Accelerated filer | ☐ | |
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 ☒ No
☐ | Yes | ☒ | No |
As ofAt July 24,202023, 2021 there were 18,894,90819,063,903 shares of the Registrant’s Common Stock outstanding.
INDEX
Page | ||
Number | ||
Part I. | Financial Information | |
Item l. | Consolidated Financial Statements | |
Consolidated Balance Sheets – June | 3 | |
Consolidated Statements of | 4 | |
Consolidated Statements of Comprehensive | 5 | |
Consolidated Statements of Changes In Stockholders’ Equity (unaudited) – Three and nine months Ended June | 6 | |
Consolidated Statements of Cash Flows (unaudited) – Nine Months Ended June | 7 | |
Notes to the Consolidated Financial Statements (unaudited) | 8 | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 27 |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 31 |
Item 4. | Controls and Procedures | 31 |
Part II. | Other Information | 32 |
Item 6. | Exhibits | 32 |
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in
J & J SNACK FOODS CORP. AND SUBSIDIARIES | ||||
CONSOLIDATED BALANCE SHEETS | ||||
(in thousands, except share amounts) |
June 27, | June 26, | |||||||||||||||
2020 | September 28, | 2021 | September 26, | |||||||||||||
(unaudited) | 2019 | (unaudited) | 2020 | |||||||||||||
Assets | ||||||||||||||||
Current assets | ||||||||||||||||
Cash and cash equivalents | $ | 169,961 | $ | 192,395 | $ | 276,268 | $ | 195,809 | ||||||||
Marketable securities held to maturity | 58,268 | 51,091 | 9,902 | 51,151 | ||||||||||||
Accounts receivable, net | 116,488 | 140,938 | 154,845 | 126,587 | ||||||||||||
Inventories | 120,564 | 116,165 | 114,822 | 108,923 | ||||||||||||
Prepaid expenses and other | 13,660 | 5,768 | 11,547 | 17,087 | ||||||||||||
Total current assets | 478,941 | 506,357 | 567,384 | 499,557 | ||||||||||||
Property, plant and equipment, at cost | ||||||||||||||||
Land | 2,494 | 2,494 | 2,494 | 2,494 | ||||||||||||
Buildings | 26,582 | 26,582 | 26,582 | 26,582 | ||||||||||||
Plant machinery and equipment | 331,481 | 315,360 | 340,693 | 330,168 | ||||||||||||
Marketing equipment | 253,533 | 240,681 | 253,199 | 250,914 | ||||||||||||
Transportation equipment | 9,905 | 9,725 | 10,232 | 9,966 | ||||||||||||
Office equipment | 34,935 | 31,217 | 34,291 | 33,878 | ||||||||||||
Improvements | 42,291 | 40,626 | 45,349 | 43,264 | ||||||||||||
Construction in progress | 16,199 | 10,039 | 28,134 | 19,995 | ||||||||||||
Total Property, plant and equipment, at cost | 717,420 | 676,724 | 740,974 | 717,261 | ||||||||||||
Less accumulated depreciation and amortization | 452,707 | 423,276 | 482,056 | 455,645 | ||||||||||||
Property, plant and equipment, net | 264,713 | 253,448 | 258,918 | 261,616 | ||||||||||||
Long-term assets | ||||||||||||||||
Other assets | ||||||||||||||||
Goodwill | 123,033 | 102,511 | 121,833 | 121,833 | ||||||||||||
Other intangible assets, net | 81,117 | 54,922 | 79,676 | 81,622 | ||||||||||||
Marketable securities held to maturity | 28,863 | 79,360 | 7,568 | 16,927 | ||||||||||||
Marketable securities available for sale | 13,232 | 19,903 | 11,273 | 13,976 | ||||||||||||
Operating lease right-of-use assets | 64,615 | - | 51,811 | 58,110 | ||||||||||||
Other | 2,772 | 2,838 | 3,083 | 2,912 | ||||||||||||
Total long-term assets | 313,632 | 259,534 | ||||||||||||||
Total other assets | 275,244 | 295,380 | ||||||||||||||
Total Assets | $ | 1,057,286 | $ | 1,019,339 | $ | 1,101,546 | $ | 1,056,553 | ||||||||
Liabilities and Stockholders' Equity | ||||||||||||||||
Current Liabilities | ||||||||||||||||
Current finance lease liabilities | $ | 329 | $ | 339 | $ | 252 | $ | 349 | ||||||||
Accounts payable | 68,829 | 72,029 | 97,117 | 73,135 | ||||||||||||
Accrued insurance liability | 12,131 | 10,457 | 15,764 | 13,039 | ||||||||||||
Accrued liabilities | 6,951 | 7,808 | 6,890 | 7,420 | ||||||||||||
Current operating lease liabilities | 13,913 | - | 12,780 | 13,173 | ||||||||||||
Accrued compensation expense | 14,814 | 21,154 | 15,000 | 16,134 | ||||||||||||
Dividends payable | 10,873 | 9,447 | 12,064 | 10,876 | ||||||||||||
Total current liabilities | 127,840 | 121,234 | 159,867 | 134,126 | ||||||||||||
Noncurrent finance lease liabilities | 456 | 718 | 417 | 368 | ||||||||||||
Noncurrent operating lease liabilities | 56,570 | - | 41,573 | 47,688 | ||||||||||||
Deferred income taxes | 61,348 | 61,920 | 64,284 | 64,413 | ||||||||||||
Other long-term liabilities | 472 | 1,716 | 375 | 460 | ||||||||||||
Stockholders' Equity | ||||||||||||||||
Preferred stock, $1 par value; authorized 10,000,000 shares; none issued | - | - | ||||||||||||||
Common stock, no par value; authorized, 50,000,000 shares; issued and outstanding 18,888,000 and 18,895,000 respectively | 46,560 | 45,744 | ||||||||||||||
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 19,061,000 and 18,915,000 respectively | 69,572 | 49,268 | ||||||||||||||
Accumulated other comprehensive loss | (16,058 | ) | (12,988 | ) | (13,182 | ) | (15,587 | ) | ||||||||
Retained Earnings | 780,098 | 800,995 | 778,640 | 775,817 | ||||||||||||
Total stockholders' equity | 810,600 | 833,751 | 835,030 | 809,498 | ||||||||||||
Total Liabilities and Stockholders' Equity | $ | 1,057,286 | $ | 1,019,339 | $ | 1,101,546 | $ | 1,056,553 |
The accompanying notes are an integral part of these statements.
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF (LOSS) EARNINGS
(Unaudited)
(in thousands, except per share amounts)
Three months ended | Nine months ended | |||||||||||||||
June 27, | June 29, | June 27, | June 29, | |||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Net Sales | $ | 214,563 | $ | 326,701 | $ | 769,502 | $ | 874,615 | ||||||||
Cost of goods sold | 177,367 | 225,352 | 585,002 | 617,155 | ||||||||||||
Gross Profit | 37,196 | 101,349 | 184,500 | 257,460 | ||||||||||||
Operating expenses | ||||||||||||||||
Marketing | 21,952 | 26,398 | 68,532 | 69,792 | ||||||||||||
Distribution | 21,272 | 24,447 | 69,648 | 70,521 | ||||||||||||
Administrative | 8,374 | 10,668 | 28,166 | 29,909 | ||||||||||||
Plant shutdown impairment costs | 5,072 | - | 5,072 | - | ||||||||||||
Other general (income) expense | (54 | ) | 794 | (183 | ) | 1,343 | ||||||||||
Total operating expenses | 56,616 | 62,307 | 171,235 | 171,565 | ||||||||||||
Operating (loss) income | (19,420 | ) | 39,042 | 13,265 | 85,895 | |||||||||||
Other income (expense) | ||||||||||||||||
Investment income | 1,300 | 1,953 | 2,673 | 5,775 | ||||||||||||
Interest expense & other | (7 | ) | 1,972 | (60 | ) | 1,920 | ||||||||||
(Loss) earnings before income taxes | (18,127 | ) | 42,967 | 15,878 | 93,590 | |||||||||||
Income taxes | (5,480 | ) | 12,095 | 4,157 | 24,838 | |||||||||||
NET (LOSS) EARNINGS | $ | (12,647 | ) | $ | 30,872 | $ | 11,721 | $ | 68,752 | |||||||
(Loss) earnings per diluted share | $ | (0.67 | ) | $ | 1.63 | $ | 0.62 | $ | 3.64 | |||||||
Weighted average number of diluted shares | 18,888 | 18,947 | 19,036 | 18,912 | ||||||||||||
(Loss) earnings per basic share | $ | (0.67 | ) | $ | 1.64 | $ | 0.62 | $ | 3.66 | |||||||
Weighted average number of basic shares | 18,888 | 18,823 | 18,902 | 18,794 |
J & J SNACK FOODS CORP. AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF EARNINGS |
(Unaudited) |
(in thousands, except per share amounts) |
Three months ended | Nine months ended | |||||||||||||||
June 26, | June 27, | June 26, | June 27, | |||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Net Sales | $ | 324,344 | $ | 214,563 | $ | 821,519 | $ | 769,502 | ||||||||
Cost of goods sold | 228,170 | 177,367 | 614,324 | 585,002 | ||||||||||||
Gross Profit | 96,174 | 37,196 | 207,195 | 184,500 | ||||||||||||
Operating expenses | ||||||||||||||||
Marketing | 20,502 | 21,952 | 56,995 | 68,532 | ||||||||||||
Distribution | 27,311 | 21,272 | 75,643 | 69,648 | ||||||||||||
Administrative | 10,348 | 8,374 | 29,004 | 28,166 | ||||||||||||
Plant shutdown impairment costs | 0 | 5,072 | 0 | 5,072 | ||||||||||||
Other general (income) expense | (131 | ) | (54 | ) | (399 | ) | (183 | ) | ||||||||
Total Operating Expenses | 58,030 | 56,616 | 161,243 | 171,235 | ||||||||||||
Operating Income (loss) | 38,144 | (19,420 | ) | 45,952 | 13,265 | |||||||||||
Other (expense)income | ||||||||||||||||
Investment income (loss) | 470 | 1,300 | 2,419 | 2,673 | ||||||||||||
Interest (expense) & other | (8 | ) | (7 | ) | (19 | ) | (60 | ) | ||||||||
Earnings (loss) before income taxes | 38,606 | (18,127 | ) | 48,352 | 15,878 | |||||||||||
Income taxes (benefit) | 9,713 | (5,480 | ) | 11,620 | 4,157 | |||||||||||
NET EARNINGS (LOSS) | $ | 28,893 | $ | (12,647 | ) | $ | 36,732 | $ | 11,721 | |||||||
Earnings (loss) per diluted share | $ | 1.51 | $ | (0.67 | ) | $ | 1.92 | $ | 0.62 | |||||||
Weighted average number of diluted shares | 19,185 | 18,888 | 19,116 | 19,036 | ||||||||||||
Earnings (loss) per basic share | $ | 1.52 | $ | (0.67 | ) | $ | 1.93 | $ | 0.62 | |||||||
Weighted average number of basic shares | 19,045 | 18,888 | 18,996 | 18,902 |
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 | Nine months ended | |||||||||||||||
June 27, | June 29, | June 27, | June 29, | |||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Net (Loss) Earnings | $ | (12,647 | ) | $ | 30,872 | $ | 11,721 | $ | 68,752 | |||||||
Foreign currency translation adjustments | 41 | 496 | (3,070 | ) | (469 | ) | ||||||||||
Total Other Comprehensive Income (loss) | 41 | 496 | (3,070 | ) | (469 | ) | ||||||||||
Comprehensive (Loss) Income | $ | (12,606 | ) | $ | 31,368 | $ | 8,651 | $ | 68,283 |
Three months ended | Nine months ended | |||||||||||||||
June 26, | June 27, | June 26, | June 27, | |||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Net Earnings (loss) | $ | 28,893 | $ | (12,647 | ) | $ | 36,732 | $ | 11,721 | |||||||
Foreign currency translation adjustments | 657 | 41 | 2,405 | (3,070 | ) | |||||||||||
Total Other Comprehensive Income (loss) , net of tax | 657 | 41 | 2,405 | (3,070 | ) | |||||||||||
Comprehensive Income (loss) | $ | 29,550 | $ | (12,606 | ) | $ | 39,137 | $ | 8,651 |
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 | Accumulated | |||||||||||||||||||||||||||||||||||||||
Other | Other | |||||||||||||||||||||||||||||||||||||||
Common Stock | Comprehensive | Retained | Common Stock | Comprehensive | Retained | |||||||||||||||||||||||||||||||||||
Shares | Amount | Loss | Earnings | Total | Shares | Amount | Loss | Earnings | Total | |||||||||||||||||||||||||||||||
Balance at September 28, 2019 | 18,895 | $ | 45,744 | $ | (12,988 | ) | $ | 800,995 | $ | 833,751 | ||||||||||||||||||||||||||||||
Balance as September 26, 2020 | 18,915 | $ | 49,268 | $ | (15,587 | ) | $ | 775,817 | $ | 809,498 | ||||||||||||||||||||||||||||||
Issuance of common stock upon exercise of stock options | 5 | 468 | - | - | 468 | 41 | 4,390 | 0 | 0 | 4,390 | ||||||||||||||||||||||||||||||
Foreign currency translation adjustment | - | - | 810 | - | 810 | - | 0 | 2,279 | 0 | 2,279 | ||||||||||||||||||||||||||||||
Dividends declared | - | - | - | (10,867 | ) | (10,867 | ) | - | 0 | 0 | (10,900 | ) | (10,900 | ) | ||||||||||||||||||||||||||
Share-based compensation | - | 1,299 | - | - | 1,299 | - | 1,244 | 0 | 0 | 1,244 | ||||||||||||||||||||||||||||||
Net earnings | - | - | - | 17,059 | 17,059 | - | 0 | 0 | 1,778 | 1,778 | ||||||||||||||||||||||||||||||
Balance at December 28, 2019 | 18,900 | 47,511 | (12,178 | ) | 807,187 | 842,520 | ||||||||||||||||||||||||||||||||||
Balance at December 26, 2020 | 18,956 | $ | 54,902 | $ | (13,308 | ) | $ | 766,695 | $ | 808,289 | ||||||||||||||||||||||||||||||
Issuance of common stock upon exercise of stock options | 47 | 5,049 | - | - | 5,049 | 72 | 8,384 | 0 | 0 | 8,384 | ||||||||||||||||||||||||||||||
Issuance of common stock for employee stock purchase plan | 6 | 783 | - | - | 783 | 6 | 714 | 0 | 0 | 714 | ||||||||||||||||||||||||||||||
Foreign currency translation adjustment | - | - | (3,921 | ) | - | (3,921 | ) | - | 0 | (531 | ) | 0 | (531 | ) | ||||||||||||||||||||||||||
Issuance of common stock under deferred stock plan | 1 | 90 | - | - | 90 | |||||||||||||||||||||||||||||||||||
Dividends declared | - | - | - | (10,878 | ) | (10,878 | ) | |||||||||||||||||||||||||||||||||
Share-based compensation | - | 1,088 | - | - | 1,088 | |||||||||||||||||||||||||||||||||||
Repurchase of common stock | (66 | ) | (8,972 | ) | - | - | (8,972 | ) | ||||||||||||||||||||||||||||||||
Net earnings | - | - | - | 7,309 | 7,309 | |||||||||||||||||||||||||||||||||||
Balance at March 28, 2020 | 18,888 | 45,549 | (16,099 | ) | 803,618 | 833,068 | ||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | - | - | 41 | - | 41 | |||||||||||||||||||||||||||||||||||
Dividends declared | - | - | - | (10,873 | ) | (10,873 | ) | |||||||||||||||||||||||||||||||||
Share-based compensation | - | 1,011 | - | - | 1,011 | |||||||||||||||||||||||||||||||||||
Net loss | - | - | - | (12,647 | ) | (12,647 | ) | |||||||||||||||||||||||||||||||||
Balance at June 27, 2020 | 18,888 | $ | 46,560 | $ | (16,058 | ) | $ | 780,098 | $ | 810,600 | ||||||||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||||||||||||||||||
Other | ||||||||||||||||||||||||||||||||||||||||
Common Stock | Comprehensive | Retained | ||||||||||||||||||||||||||||||||||||||
Shares | Amount | Loss | Earnings | Total | ||||||||||||||||||||||||||||||||||||
Balance at September 29, 2018 | 18,754 | $ | 27,340 | $ | (11,994 | ) | $ | 743,745 | $ | 759,091 | ||||||||||||||||||||||||||||||
Issuance of common stock upon exercise of stock options | 20 | 1,704 | - | - | 1,704 | |||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | - | - | (1,359 | ) | - | (1,359 | ) | |||||||||||||||||||||||||||||||||
Reclass from accumulated other comprehensive gain | - | - | (85 | ) | 85 | - | ||||||||||||||||||||||||||||||||||
Dividends declared | - | - | - | (9,389 | ) | (9,389 | ) | - | 0 | 0 | (10,943 | ) | (10,943 | ) | ||||||||||||||||||||||||||
Share-based compensation | - | 972 | - | - | 972 | - | 1,026 | 0 | 0 | 1,026 | ||||||||||||||||||||||||||||||
Net earnings | - | - | - | 17,526 | 17,526 | - | 0 | 0 | 6,061 | 6,061 | ||||||||||||||||||||||||||||||
Balance at December 29, 2018 | 18,774 | 30,016 | (13,438 | ) | 751,967 | 768,545 | ||||||||||||||||||||||||||||||||||
Issuance of common stock upon exercise of stock options | 34 | 3,451 | - | - | 3,451 | |||||||||||||||||||||||||||||||||||
Issuance of common stock for employee stock purchase plan | 6 | 772 | - | - | 772 | |||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | - | - | 394 | - | 394 | |||||||||||||||||||||||||||||||||||
Issuance of common stock under deferred stock plan | 1 | 90 | - | - | 90 | |||||||||||||||||||||||||||||||||||
Dividends declared | - | - | - | (9,405 | ) | (9,405 | ) | |||||||||||||||||||||||||||||||||
Share-based compensation | - | 914 | - | - | 914 | |||||||||||||||||||||||||||||||||||
Repurchase of common stock | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
Net earnings | - | - | - | 20,354 | 20,354 | |||||||||||||||||||||||||||||||||||
Balance at March 30, 2019 | 18,815 | 35,243 | (13,044 | ) | 762,916 | 785,115 | ||||||||||||||||||||||||||||||||||
Balance at March 27, 2021 | 19,034 | 65,026 | (13,839 | ) | 761,813 | 813,000 | ||||||||||||||||||||||||||||||||||
Issuance of common stock upon exercise of stock options | 15 | 1,499 | - | - | 1,499 | 27 | 3,564 | 0 | 0 | 3,564 | ||||||||||||||||||||||||||||||
Foreign currency translation adjustment | - | - | 496 | - | 496 | - | 0 | 657 | 0 | 657 | ||||||||||||||||||||||||||||||
Dividends declared | - | - | - | (9,413 | ) | (9,413 | ) | - | 0 | 0 | (12,066 | ) | (12,066 | ) | ||||||||||||||||||||||||||
Share-based compensation | - | 1,098 | - | - | 1,098 | - | 982 | 0 | 0 | 982 | ||||||||||||||||||||||||||||||
Repurchase of common stock | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
Net earnings | - | - | - | 30,872 | 30,872 | - | 0 | 0 | 28,893 | 28,893 | ||||||||||||||||||||||||||||||
Balance at June 29, 2019 | 18,830 | $ | 37,840 | $ | (12,548 | ) | $ | 784,375 | $ | 809,667 | ||||||||||||||||||||||||||||||
Balance at June 26, 2021 | 19,061 | 69,572 | (13,182 | ) | 778,640 | 835,030 |
Accumulated | ||||||||||||||||||||
Other | ||||||||||||||||||||
Common Stock | Comprehensive | Retained | ||||||||||||||||||
Shares | Amount | Loss | Earnings | Total | ||||||||||||||||
Balance at September 28, 2019 | 18,895 | $ | 45,744 | $ | (12,988 | ) | $ | 800,995 | $ | 833,751 | ||||||||||
Issuance of common stock upon exercise of stock options | 5 | 468 | 0 | 0 | 468 | |||||||||||||||
Foreign currency translation adjustment | - | 0 | 810 | 0 | 810 | |||||||||||||||
Dividends declared | - | 0 | 0 | (10,867 | ) | (10,867 | ) | |||||||||||||
Share-based compensation | - | 1,299 | 0 | 0 | 1,299 | |||||||||||||||
Net earnings | - | 0 | 0 | 17,059 | 17,059 | |||||||||||||||
Balance at December 28, 2019 | 18,900 | $ | 47,511 | $ | (12,178 | ) | $ | 807,187 | $ | 842,520 | ||||||||||
Issuance of common stock upon exercise of stock options | 47 | 5,049 | 0 | 0 | 5,049 | |||||||||||||||
Issuance of common stock for employee stock purchase plan | 6 | 783 | 0 | 0 | 783 | |||||||||||||||
Foreign currency translation adjustment | - | 0 | (3,921 | ) | 0 | (3,921 | ) | |||||||||||||
Issuance of common stock under deferred stock plan | 1 | 90 | 0 | 0 | 90 | |||||||||||||||
Dividends declared | - | 0 | 0 | (10,878 | ) | (10,878 | ) | |||||||||||||
Share-based compensation | - | 1,088 | 0 | 0 | 1,088 | |||||||||||||||
Repurchase of common stock | (66 | ) | (8,972 | ) | 0 | 0 | (8,972 | ) | ||||||||||||
Net earnings | - | 0 | 0 | 7,309 | 7,309 | |||||||||||||||
Balance at March 28, 2020 | 18,888 | 45,549 | (16,099 | ) | 803,618 | 833,068 | ||||||||||||||
Foreign currency translation adjustment | - | 0 | 41 | 0 | 41 | |||||||||||||||
Dividends declared | - | 0 | 0 | (10,873 | ) | (10,873 | ) | |||||||||||||
Share-based compensation | - | 1,011 | 0 | 0 | 1,011 | |||||||||||||||
Net loss | - | 0 | 0 | (12,647 | ) | (12,647 | ) | |||||||||||||
Balance at June 27, 2020 | 18,888 | 46,560 | (16,058 | ) | 780,098 | 810,600 |
The accompanying notes are an integral part of these statements.
J & J SNACK FOODS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in
Nine months ended | Nine Months Ended | |||||||||||||||
June 27, | June 29, | June 26, | June 27, | |||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
Operating activities: | ||||||||||||||||
Net earnings | $ | 11,721 | $ | 68,752 | $ | 36,732 | $ | 11,721 | ||||||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||||||||||
Depreciation of property, plant and equipment | 37,353 | 33,374 | ||||||||||||||
Depreciation of fixed assets | 36,278 | 37,353 | ||||||||||||||
Amortization of intangibles and deferred costs | 2,516 | 2,586 | 2,096 | 2,516 | ||||||||||||
Share-based compensation | 3,421 | 3,006 | 3,252 | 3,421 | ||||||||||||
Deferred income taxes | (426 | ) | 690 | (188 | ) | (426 | ) | |||||||||
Loss on marketable securities | 1,746 | 410 | ||||||||||||||
(Gain) loss on marketable securities | (926 | ) | 1,746 | |||||||||||||
Plant shutdown impairment costs | 5,072 | - | 0 | 5,072 | ||||||||||||
Other | (309 | ) | 350 | (305 | ) | (309 | ) | |||||||||
Changes in assets and liabilities net of effects from purchase of companies | ||||||||||||||||
Decrease (increase) in accounts receivable | 24,634 | (14,289 | ) | |||||||||||||
(Increase) decrease in accounts receivable | (27,940 | ) | 24,634 | |||||||||||||
Increase in inventories | (3,751 | ) | (6,257 | ) | (5,964 | ) | (3,751 | ) | ||||||||
(Increase) decrease in prepaid expenses | (7,879 | ) | 957 | 5,710 | (7,879 | ) | ||||||||||
(Decrease) increase in accounts payable and accrued liabilities | (7,478 | ) | 11,584 | |||||||||||||
Increase (decrease) in accounts payable and accrued liabilities | 24,823 | (7,478 | ) | |||||||||||||
Net cash provided by operating activities | 66,620 | 101,163 | 73,568 | 66,620 | ||||||||||||
Investing activities: | ||||||||||||||||
Payment for purchases of companies, net of cash acquired | (57,197 | ) | (1,155 | ) | ||||||||||||
Payments for purchases of companies, net of cash acquired | 0 | (57,197 | ) | |||||||||||||
Purchases of property, plant and equipment | (47,637 | ) | (42,136 | ) | (34,456 | ) | (47,637 | ) | ||||||||
Purchases of marketable securities | (6,103 | ) | (24,056 | ) | 0 | (6,103 | ) | |||||||||
Proceeds from redemption and sales of marketable securities | 54,125 | 29,721 | 54,191 | 54,125 | ||||||||||||
Proceeds from disposal of property, plant and equipment | 2,852 | 1,463 | ||||||||||||||
Proceeds from disposal of property and equipment | 2,079 | 2,852 | ||||||||||||||
Other | (72 | ) | (212 | ) | 42 | (72 | ) | |||||||||
Net cash used in investing activities | (54,032 | ) | (36,375 | ) | ||||||||||||
Net cash provided by (used in) investing activities | 21,856 | (54,032 | ) | |||||||||||||
Financing activities: | ||||||||||||||||
Payments to repurchase common stock | (8,972 | ) | - | 0 | (8,972 | ) | ||||||||||
Proceeds from issuance of stock | 6,300 | 7,426 | 17,178 | 6,300 | ||||||||||||
Payments on capitalized lease obligations | (272 | ) | (33 | ) | (48 | ) | (272 | ) | ||||||||
Payment of cash dividend | (31,193 | ) | (27,230 | ) | (32,719 | ) | (31,193 | ) | ||||||||
Net cash used in financing activities | (34,137 | ) | (19,837 | ) | (15,589 | ) | (34,137 | ) | ||||||||
Effect of exchange rate on cash and cash equivalents | (885 | ) | (333 | ) | 624 | (885 | ) | |||||||||
Net (decrease) increase in cash and cash equivalents | (22,434 | ) | 44,618 | |||||||||||||
Net increase (decrease) in cash and cash equivalents | 80,459 | (22,434 | ) | |||||||||||||
Cash and cash equivalents at beginning of period | 192,395 | 111,479 | 195,809 | 192,395 | ||||||||||||
Cash and cash equivalents at end of period | $ | 169,961 | $ | 156,097 | $ | 276,268 | $ | 169,961 |
The accompanying notes are an integral part of these statements.
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1 | The accompanying unaudited In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position and the results of operations and cash flows. The results of operations for the three and nine months ended June 26, 2021 and June 27, 2020 are not necessarily indicative of results for the full year. Sales of our frozen beverages and frozen juice bars and ices are generally higher in the third and fourth quarters due to warmer weather. 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, which has impacted the comparative nature of our results. While the majority of these venues have re-opened, the future impact of COVID-19 is still uncertain and continues to be monitored. While we believe that the disclosures presented are adequate to make the information not misleading, we suggest that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 26, 2020. |
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position and the results of operations and cash flows.
The results of operations for the three and nine months ended June 27, 2020 and June 29, 2019 are not necessarily indicative of results for the full year. Sales of our frozen beverages and frozen juice bars and ices are generally higher in the third and fourth quarters due to warmer weather. Additionally, approximately 2/3 of our sales are to venues and locations that have shut down or sharply curtailed their foodservice operations as a result of COVID-19 resulting in a negative impact on our business beginning in March 2020 which we anticipate will continue to have a negative impact on our business for an undetermined length of time.
Certain prior year financial statement amounts have been reclassified to be consistent with the presentation for the current year.
While we believe that the disclosures presented are adequate to make the information not misleading, it is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 28, 2019.
Note 2
Revenue Recognition
When Performance Obligations Are Satisfied A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account for revenue recognition. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. |
The singular performance obligation of our customer contracts for product and machine sales is determined by each individual purchase order and the respective products ordered, with revenue being recognized at a point-in-time when the obligation under the terms of the agreement is satisfied and product control is transferred to our customer. Specifically, control transfers to our customers when the product is delivered to, installed, or picked up by our customers based upon applicable shipping terms, as our customers can direct the use and obtain substantially all of the remaining benefits from the product at this point in time. The performance obligations in our customer contracts for product are generally satisfied within 30 days.
The singular performance obligation of our customer contracts for time and material repair and maintenance equipment service is the performance of the repair and maintenance with revenue being recognized at a point-in-time when the repair and maintenance is completed. The singular performance obligation of our customer repair and maintenance equipment service contracts is the performance of the repair and maintenance with revenue being recognized over the time the service is expected to be performed. Our customers are billed for service contracts in advance of performance and therefore we have contract 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 $15,481,000 at June 26, 2021 and $14,345,000 at September 26, 2020. 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: |
We do not grant a general right of return. However, customers may return defective or non-conforming products. Customer remedies may include either a cash refund or an exchange of the product. We do not estimate a right of return and related refund liability as returns of our products are rare.
Contract Balances
Our customers are billed for service contracts in advance of performance and therefore we have contract liability on our balance sheet as follows:
(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||
Three months ended | Nine months ended | Three months ended | Nine months ended | |||||||||||||||||||||||||||||
June 27, | June 29, | June 27, | June 29, | June 26, | June 27, | June 26, | June 27, | |||||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
Beginning Balance | $ | 1,235 | $ | 1,655 | $ | 1,334 | $ | 1,865 | $ | 1,090 | $ | 1,235 | $ | 1,327 | $ | 1,334 | ||||||||||||||||
Additions to contract liability | 1,362 | 1,271 | 4,111 | 4,299 | $ | 1,237 | 1,362 | 4,182 | 4,111 | |||||||||||||||||||||||
Amounts recognized as revenue | (1,311 | ) | (1,499 | ) | (4,159 | ) | (4,737 | ) | $ | (1,283 | ) | (1,311 | ) | (4,465 | ) | (4,159 | ) | |||||||||||||||
Ending Balance | $ | 1,286 | $ | 1,427 | $ | 1,286 | $ | 1,427 | $ | 1,044 | $ | 1,286 | $ | 1,044 | $ | 1,286 |
Disaggregation of Revenue
See Note 9 for disaggregation of our net sales by class of similar product and type of customer.
| 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 $1,185,000 and $1,388,000 on June 26, 2021 and September 26, 2020, respectively. |
Note 3 | Depreciation of equipment and buildings is provided for by the straight-line method over the assets’ estimated useful lives. Amortization of improvements is provided for by the straight-line method over the term of the lease or the assets’ estimated useful lives, whichever is shorter. Licenses and rights, customer relationships and non-compete agreements arising from acquisitions are amortized by the straight-line method over periods ranging from 2 to 20 years. Depreciation expense was |
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 June 27, 2020 | ||||||||||||
Loss | Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
(in thousands, except per share amounts) | ||||||||||||
Basic EPS | ||||||||||||
Net Loss available to common stockholders | $ | (12,647 | ) | 18,888 | $ | (0.67 | ) | |||||
Effect of Dilutive Securities | ||||||||||||
Options | - | - | - | |||||||||
Diluted EPS | ||||||||||||
Net Loss available to common stockholders plus assumed conversions | $ | (12,647 | ) | 18,888 | $ | (0.67 | ) |
Three Months Ended June 26, 2021 | ||||||||||||
Income | Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
(in thousands, except per share amounts) | ||||||||||||
Basic EPS | ||||||||||||
Net Earnings available to common stockholders | $ | 28,893 | 19,045 | $ | 1.52 | |||||||
Effect of Dilutive Securities | ||||||||||||
Options | 0 | 140 | (0.01 | ) | ||||||||
Diluted EPS | ||||||||||||
Net Earnings available to common stockholders plus assumed conversions | $ | 28,893 | 19,185 | $ | 1.51 |
20,800 anti-dilutive shares have been excluded in the computation of EPS for the three months ended June 26, 2021
Nine Months Ended June 26, 2021 | ||||||||||||
Income | Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
(in thousands, except per share amounts) | ||||||||||||
Basic EPS | ||||||||||||
Net Earnings available to common stockholders | $ | 36,732 | 18,996 | $ | 1.93 | |||||||
Effect of Dilutive Securities | ||||||||||||
Options | 0 | 120 | (0.01 | ) | ||||||||
Diluted EPS | ||||||||||||
Net Earnings available to common stockholders plus assumed conversions | $ | 36,732 | 19,116 | $ | 1.92 |
289,692 anti-dilutive shares have been excluded in the computation of EPS for the nine months ended June 26, 2021
Three Months Ended June 27, 2020 | ||||||||||||
Income | Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
(in thousands, except per share amounts) | ||||||||||||
Basic EPS | ||||||||||||
Net Earnings available to common stockholders | $ | (12,647 | ) | 18,888 | $ | (0.67 | ) | |||||
Effect of Dilutive Securities | ||||||||||||
Options | 0 | 0 | 0 | |||||||||
Diluted EPS | ||||||||||||
Net Earnings available to common stockholders plus assumed conversions | $ | (12,647 | ) | 18,888 | $ | (0.67 | ) |
845,977 anti-dilutive shares have been excluded in the computation of EPS for the three months ended June 27, 2020.2020
Nine Months Ended June 27, 2020 | ||||||||||||
Income | Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
(in thousands, except per share amounts) | ||||||||||||
Basic EPS | ||||||||||||
Net Earnings available to common stockholders | $ | 11,721 | 18,902 | $ | 0.62 | |||||||
Effect of Dilutive Securities | ||||||||||||
Options | - | 134 | - | |||||||||
Diluted EPS | ||||||||||||
Net Earnings available to common stockholders plus assumed conversions | $ | 11,721 | 19,036 | $ | 0.62 |
Nine Months Ended June 27, 2020 | ||||||||||||
Income | Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
(in thousands, except per share amounts) | ||||||||||||
Basic EPS | ||||||||||||
Net Earnings available to common stockholders | $ | 11,721 | 18,902 | $ | 0.62 | |||||||
Effect of Dilutive Securities | ||||||||||||
Options | 0 | 134 | 0 | |||||||||
Diluted EPS | ||||||||||||
Net Earnings available to common stockholders plus assumed conversions | $ | 11,721 | 19,036 | $ | 0.62 |
169,246 anti-dilutive shares have been excluded in the computation of EPS for the nine months ended June 27, 2020
Three Months Ended June 29, 2019 | ||||||||||||
Income | Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
(in thousands, except per share amounts) | ||||||||||||
Basic EPS | ||||||||||||
Net Earnings available to common stockholders | $ | 30,872 | 18,823 | $ | 1.64 | |||||||
Effect of Dilutive Securities | ||||||||||||
Options | - | 124 | (0.01 | ) | ||||||||
Diluted EPS | ||||||||||||
Net Earnings available to common stockholders plus assumed conversions | $ | 30,872 | 18,947 | $ | 1.63 |
163,670 anti-dilutive shares have been excluded in the computation of EPS for the nine months ended June 29, 2019
Nine Months Ended June 29, 2019 | ||||||||||||
Income | Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
(in thousands, except per share amounts) | ||||||||||||
Basic EPS | ||||||||||||
Net Earnings available to common stockholders | $ | 68,752 | 18,794 | $ | 3.66 | |||||||
Effect of Dilutive Securities | ||||||||||||
Options | - | 118 | (0.02 | ) | ||||||||
Diluted EPS | ||||||||||||
Net Earnings available to common stockholders plus assumed conversions | $ | 68,752 | 18,912 | $ | 3.64 |
163,670 anti-dilutive shares have been excluded in the computation of EPS for the nine months ended June 29, 2019
Note 5 | At June |
Three months ended | Nine months ended | |||||||||||||||
June 27, | June 29, | June 27, | June 29, | |||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Stock Options | $ | 890 | $ | 663 | $ | 2,267 | $ | 1,741 | ||||||||
Stock purchase plan | 57 | 187 | 328 | 324 | ||||||||||||
Stock issued to an outside director | 17 | 17 | 50 | 50 | ||||||||||||
Total share-based compensation | $ | 964 | $ | 867 | $ | 2,645 | $ | 2,115 | ||||||||
The above compensation is net of tax benefits | $ | 70 | $ | 254 | $ | 822 | $ | 937 |
The fair value of each option grant is estimated on the date of grant using the Black-Scholes options-pricing model with the following weighted average assumptions used for grants in fiscal 2020nine months: expected volatility of 17.4%; risk-free interest rate of 0.3%; dividend rate of 1.8% and expected lives of 51 months.
During the fiscal year 2020nine month period, the Company granted 161,682 stock options. The weighted-average grant date fair value of these options was $14.40.
During the fiscal year 2019nine month period, the Company granted 165,170 stock options. The weighted-average grant date fair value of these options was $26.29.
Three months ended | Nine months ended | |||||||||||||||
June 26, | June 27, | June 26, | June 27, | |||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
(in thousands) | ||||||||||||||||
Stock Options | $ | 512 | $ | 890 | $ | 1,505 | $ | 2,267 | ||||||||
Stock purchase plan | 171 | 57 | 513 | 328 | ||||||||||||
Stock issued to outside director | 11 | 17 | 33 | 50 | ||||||||||||
Restricted stock issued to an employee | 23 | 0 | 70 | 0 | ||||||||||||
Total share-based compensation | $ | 717 | $ | 964 | $ | 2,121 | $ | 2,645 | ||||||||
The above compensation is net of tax benefits | $ | 265 | $ | 70 | $ | 1,131 | $ | 822 |
The fair value of each option grant is estimated on the date of grant using the Black-Scholes options-pricing model with the following weighted average assumptions used for grants in fiscal 2021nine months: expected volatility of 25.8%; risk-free interest rate of 0.8%; dividend rate of 1.4% and expected lives of 51 months. During the fiscal year2021nine-month period, the Company granted 138,432 stock options. The weighted-average grant date fair value of these options was $31.20. During the fiscal year 2020nine-month period, the Company granted 161,682 stock options. The weighted-average grant date fair value of these options was $14.40. Expected volatility is based on the historical volatility of the price of our common shares over the past 51 months for 5-year options and 10 years for 10-year options. We use historical information to estimate expected life and forfeitures within the valuation model. The expected term of awards represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Compensation cost is recognized using a straight-line method over the vesting or service period and is net of estimated forfeitures. Note 6 We account for our income taxes under the liability method. Under the liability method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates that will be in effect when these differences reverse. Deferred tax expense is the result of changes in deferred tax assets and liabilities. Additionally, we recognize a liability for income taxes and associated penalties and interest for tax positions taken or expected to be taken in a tax return which are more likely than not to be overturned by taxing authorities (“uncertain tax positions”). We have not recognized a tax benefit in our financial statements for these uncertain tax positions. The total amount of gross unrecognized tax benefits is $343,000 and $360,000 on June 26, 2021 and September 26, 2020, respectively, all of which would impact our effective tax rate over time, if recognized. We recognize interest and penalties related to uncertain tax positions as a part of the provision for income taxes. As of June 26, 2021, and September 26, 2020, the Company has $267,000 of accrued interest and penalties. In addition to our federal tax return and tax returns for Mexico and Canada, we file tax returns in all states that have a corporate income tax with virtually all open for examination for three to four years. Our effective tax rate for the nine months ended June 26, 2021 was 24%, primarily due to a $1,131,000 tax benefit related to share-based compensation. Our effective tax rate for the nine months ended June 27, 2020 was 26%. Note 7 In June 2016, the FASB issued ASU 2016-13,Measurement of Credit Losses on Financial Instruments, which changes the impairment model used to measure credit losses for most financial assets. We are required to recognize an allowance that reflects the Company’s current estimate of credit losses expected to be incurred over the life of the financial asset, including trade receivables and held-to-maturity debt securities. The Company adopted this guidance in the first quarter of Fiscal 2021 using the modified retrospective transition method. The adoption of ASU 2016-13 did not have a material impact on the Company’s consolidated financial statements. Note 8 Inventories consist of the following: June 27, September 28, June 26, September 26, 2020 2019 2021 2020 (unaudited) (unaudited) (in thousands) (in thousands) Finished goods Raw materials Packaging materials Equipment parts and other Total Inventories 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 Makers. Our three reportable segments are Food Service, Retail Supermarkets and Frozen Beverages. All inter-segment net sales and expenses have been eliminated in computing net sales and operating income. These segments are described below. Food Service The primary products sold by the food service group are soft pretzels, frozen juice treats and desserts, churros, dough enrobed handheld products and baked goods. Our customers in the food service industry include snack bars and food stands in chain, department and discount stores; malls and shopping centers; fast food outlets; stadiums and sports arenas; leisure andtheme parks; convenience stores; movie theatres; warehouse club stores; schools, colleges and other institutions. Within the food service industry, our products are purchased by the consumer primarily for consumption at the point-of-sale. Retail Supermarkets The primary products sold to the retail supermarket channel are soft pretzel products – including SUPERPRETZEL, frozen juice treats and desserts including LUIGI’S Real Italian Ice, MINUTE MAID Juice Bars and Soft Frozen Lemonade, WHOLE FRUIT frozen fruit bars and sorbet, PHILLY SWIRL cups and sticks, ICEE Squeeze-Up Tubes and dough enrobed handheld Frozen Beverages We sell frozen beverages and related products to the food service industry primarily under the names ICEE, SLUSH PUPPIE and PARROT ICE in the United States, Mexico and Canada. We also provide repair and maintenance service to customers for customers’ owned equipment. The Chief Operating Decision Maker for Food Service and Retail Supermarkets and the Chief Operating Decision Maker for Frozen Beverages monthly review detailed operating income statements and sales reports in order to assess performance and allocate resources to each individual segment. Sales and operating income are key variables monitored by the Chief Operating Decision Makers and management when determining each segment’s and the company’s financial condition and operating performance. In addition, the Chief Operating Decision Makers review and evaluate depreciation, capital spending and assets of each segment on a quarterly basis to monitor cash flow and asset needs of each segment. Three months ended Nine months ended June 27, June 29, June 27, June 29, 2020 2019 2020 2019 Sales to External Customers: Food Service Soft pretzels Frozen juices and ices Churros Handhelds Bakery Other Total Food Service Retail Supermarket Soft pretzels Frozen juices and ices Biscuits Handhelds Coupon redemption Other Total Retail Supermarket Frozen Beverages Beverages Repair and maintenance service Machines revenue Other Total Frozen Beverages Consolidated Sales Depreciation and Amortization: Food Service Retail Supermarket Frozen Beverages Total Depreciation and Amortization Operating (Loss)Income: Food Service Retail Supermarket Frozen Beverages Total Operating (Loss) Income Capital Expenditures: Food Service Retail Supermarket Frozen Beverages Total Capital Expenditures Assets: Food Service Retail Supermarket Frozen Beverages Total Assets Three months ended Nine months ended June 26 June 27 June 26 June 27 2021 2020 2021 2020 Sales to External Customers: Food Service Soft pretzels Frozen juices and ices Churros Handhelds Bakery Other Total Food Service Retail Supermarket Soft pretzels Frozen juices and ices Biscuits Handhelds Coupon redemption Other Total Retail Supermarket Frozen Beverages Beverages Repair and maintenance service Machines revenue Other Total Frozen Beverages Consolidated Sales Depreciation and Amortization: Food Service Retail Supermarket Frozen Beverages Total Depreciation and Amortization Operating Income : Food Service Retail Supermarket Frozen Beverages Total Operating Income (Loss) Capital Expenditures: Food Service Retail Supermarket Frozen Beverages Total Capital Expenditures Assets: Food Service Retail Supermarket Frozen Beverages Total Assets Note 10 Our three reporting units, which are also reportable segments, are Food Service, Retail Supermarkets and Frozen Beverages. The carrying amounts of acquired intangible assets for the Food Service, Retail Supermarkets and Frozen Beverage segments as of June June 27, 2020 September 28, 2019 Gross Gross Carrying Accumulated Carrying Accumulated Amount Amortization Amount Amortization (in thousands) FOOD SERVICE Indefinite lived intangible assets Trade names Amortized intangible assets Non compete agreements Customer relationships License and rights TOTAL FOOD SERVICE RETAIL SUPERMARKETS Indefinite lived intangible assets Trade names Amortized Intangible Assets Trade names Customer relationships TOTAL RETAIL SUPERMARKETS FROZEN BEVERAGES Indefinite lived intangible assets Trade names Distribution rights Amortized intangible assets Customer relationships Licenses and rights TOTAL FROZEN BEVERAGES CONSOLIDATED Balance at June 27, 2020 Balance at September 28, 2019 September 26, 2020 Gross Gross Carrying Accumulated Carrying Accumulated Amount Amortization Amount Amortization (in thousands) FOOD SERVICE Indefinite lived intangible assets Trade names Amortized intangible assets Non compete agreements Customer relationships License and rights TOTAL FOOD SERVICE RETAIL SUPERMARKETS Indefinite lived intangible assets Trade names Amortized Intangible Assets Trade names Customer relationships TOTAL RETAIL SUPERMARKETS FROZEN BEVERAGES Indefinite lived intangible assets Trade names Distribution rights Amortized intangible assets Customer relationships Licenses and rights TOTAL FROZEN BEVERAGES CONSOLIDATED Fully amortized intangible assets have been removed from the June 26, 2021 amounts. Amortizing intangible assets are being amortized by the straight-line method over periods ranging from 2 to 20 years and amortization expense is reflected throughout operating expenses. Aggregate amortization expense of intangible assets for the three months ended June 26, 2021 and June 27, 2020 was $639,000 and $831,000, respectively. Aggregate amortization expense of intangible assets for the nine months ended June 26, 2021 and June 27, 2020 was $2,096,000 and $2,507,000, respectively. Estimated amortization expense for the next five fiscal years is approximately $2,500,000 in 2021, $2,300,000 in 2022, $2,300,000 in 2023, $2,000,000 in 2024, and $1,400,000 in 2025. The weighted amortization period of the intangible assets is 10.9 years. Goodwill The carrying amounts of goodwill for the Food Service, Retail Supermarket and Frozen Beverage segments are as follows: Supermarket Balance at June 26, 2021 Balance at September 26, 2020 Note 11 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 are based on quoted prices for identical or similar instruments in markets that are not active. As a result, preferred stock and corporate bonds 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 June 26, 2021 are summarized as follows: Gross Gross Fair Amortized Unrealized Unrealized Market Cost Gains Losses Value (in thousands) Corporate Bonds Total marketable securities held to maturity The amortized cost, unrealized gains and losses, and fair market values of our investment securities available for sale at June 26, 2021 are summarized as follows: Gross Gross Fair Amortized Unrealized Unrealized Market Cost Gains Losses Value (in thousands) Mutual Funds Preferred Stock Total marketable securities available for sale 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 2021 and 2025 and then income is based on a spread above LIBOR if the securities are not called. The mutual funds and Fixed-to-Floating Perpetual Preferred Stock do not have contractual maturities; however, we classify them as long-term assets as it is our intent to hold them for a period of over one year, although we may sell some or all of them depending on presently unanticipated needs for liquidity or market conditions. The corporate bonds generate fixed income to maturity dates in 2021 through 2023, with $17.5 million maturing within 2 years. Our expectation is that we will hold the corporate bonds to their maturity dates and redeem them at our amortized cost. The amortized cost, unrealized gains and losses, and fair market values of our investment securities held to maturity at September 26, 2020 are summarized as follows: Gross Gross Fair Amortized Unrealized Unrealized Market Cost Gains Losses Value (in thousands) Corporate Bonds Total marketable securities held to maturity The amortized cost, unrealized gains and losses, and fair market values of our investment securities available for sale at September 26, 2020 are summarized as follows: Gross Gross Fair Amortized Unrealized Unrealized Market Cost Gains Losses Value (in thousands) Mutual Funds Preferred Stock Total marketable securities available for sale The amortized cost and fair value of the Company’s held to maturity securities by contractual maturity at June 26, 2021 and September 26, 2020 are summarized as follows: June 26, 2021 Fair Fair Amortized Market Amortized Market Cost Value Cost Value (in thousands) Due in one year or less Due after one year through five years Due after five years through ten years Total held to maturity securities Less current portion Long term held to maturity securities Proceeds from the redemption and sale of marketable securities were $12,854,000 and $54,191,000 in the three and nine months ended June 26, 2021 and were $23,187,000 and $54,125,000 in the three and nine months ended June 27, 2020, respectively. Gains of $21,000 and $139,000 were recorded in the three and nine months ended June 26, 2021, respectively. A gain of $324,000 was recorded in the three months ended June 27, 2020 and losses of $1,746,000 were recorded in the nine months ended June 27, 2020. Included in the gains and losses were unrealized gains of $786,000 and unrealized losses of $1,708,000 in the nine months ended June 26, 2021 and June 27, 2020, respectively. Unrealized gains of $137,000 and $285,000 were recorded in the three months ended June 26, 2021 and June 27, 2020, respectively. We use the specific identification method to determine the cost of securities sold. Total marketable securities held to maturity as of June 26, 2021 with credit ratings of AAA/AA/A had an amortized cost basis totaling $4,970,000 and those with credit ratings of BBB/BB/B had an amortized cost basis totaling $12,500,000. This rating information was obtained June 30, 2021. Note 12 Changes to the components of accumulated other comprehensive loss are as follows: Three Months Ended June 26, 2021 Nine Months Ended June 26, 2021 (unaudited) (unaudited) (in thousands) (in thousands) Foreign Currency Foreign Currency Translation Translation Adjustments Total Adjustments Total Beginning Balance Other comprehensive income (loss) before reclassifications Ending Balance Three Months Ended June 27, 2020 Nine Months Ended June 27, 2020 (unaudited) (unaudited) (in thousands) (in thousands) Foreign Currency Foreign Currency Translation Translation Adjustments Total Adjustments Total Beginning Balance Other comprehensive income (loss) before reclassifications Ending Balance Note 13 On October 1, 2019, we acquired the assets of ICEE Distributors LLC, based in Bossier City, Louisiana. ICEE Distributors does business in Arkansas, Louisiana and Texas with annual sales of approximately $13 million. Sales and operating income of ICEE Distributors were $3,163,000 and $1,099,000 for the three months ended June 26, 2021 and were $6,952,000 and $1,568,000 for the nine months ended June 26, 2021. Sales and operating income of ICEE Distributors were $3,200,000 and $1,100,000 for the three months ended June 27, 2020 and were $8,000,000 and $2,000,000 for the nine months ended June 27, 2020. On February 4, 2020, we acquired the assets of BAMA ICEE, based in Birmingham, Alabama. BAMA ICEE does business in Alabama and Georgia with annual sales of approximately $3.5 million. Sales and operating income of BAMA ICEE were $632,000 and $221,000 for the three months ended June 26, 2021 and were $1,437,000 and $365,000 for nine months ended June 26, 2021. Sales and operating income of BAMA ICEE were $636,000 and $205,000 for the three months and were $975,000 and $281,000 for the nine months ended June 27, 2020. The purchase price allocations for the acquisitions are as follows: (in thousands) ICEE BAMA Total Distributors ICEE Accounts Receivable, net Inventories Property, plant & equipment, net Customer Relationships Distribution rights Goodwill Accounts Payable Purchase Price The goodwill recognized is attributable to the assembled workforce of ICEE Distributors and certain other strategic intangible assets that do not meet the requirements for recognition separate and apart from goodwill. The Company incurred 0 acquisitions costs during the three or nine months ended June 26, 2021. Acquisition costs of $76,000 are included in other general expense for the nine months ended June 27, 2020. Note 14 – Leases General Lease Description We have operating leases with initial noncancelable lease terms in excess of one year covering the rental of various facilities and equipment. Certain of these leases contain renewal options and some provide options to purchase during the lease term. Our operating leases include leases for real estate for some of our office and manufacturing facilities as well as manufacturing and non-manufacturing equipment used in our business. The remaining lease terms for these operating leases range from 1 month to 14 years. We have finance leases with initial noncancelable lease terms in excess of one year covering the rental of various equipment. These leases are generally for manufacturing and non-manufacturing equipment used in our business. The remaining lease terms for these finance leases range from 1 year to 6 years. Gross Gross Fair Amortized Unrealized Unrealized Market Cost Gains Losses Value (in thousands) Corporate Bonds Certificates of Deposit Total marketable securities held to maturity Gross Gross Fair Amortized Unrealized Unrealized Market Cost Gains Losses Value (in thousands) Mutual Funds Preferred Stock Total marketable securities available for sale Gross Gross Fair Amortized Unrealized Unrealized Market Cost Gains Losses Value (in thousands) Corporate Bonds Certificates of Deposit Total marketable securities held to maturity Gross Gross Fair Amortized Unrealized Unrealized Market Cost Gains Losses Value (in thousands) Mutual Funds Preferred Stock Total marketable securities available for sale Fair Fair Amortized Market Amortized Market Cost Value Cost Value (in thousands) Due in one year or less Due after one year through five years Due after five years through ten years Total held to maturity securities Less current portion Long term held to maturity securities Three Months Ended June 27, 2020 Nine Months Ended June 27, 2020 (unaudited) (unaudited) (in thousands) (in thousands) Foreign Currency Foreign Currency Translation Translation Adjustments Adjustments Beginning Balance Other comprehensive income (loss) before reclassifications Ending Balance Three Months Ended June 29, 2019 Nine Months Ended June 29, 2019 (unaudited) (unaudited) (in thousands) (in thousands) Foreign Currency Unrealized Holding Gain Foreign Currency Unrealized Holding Gain Translation on Marketable Translation on Marketable Adjustments Securities Total Adjustments Securities Total Beginning Balance Other comprehensive income (loss) before reclassifications Amounts reclassified from accumulated other comprehensive income Ending Balance (in thousands) ICEE BAMA Total Distributors ICEE Accounts Receivable, net Inventories Property, plant & equipment, net Customer Relationships Distribution rights Goodwill Accounts Payable Purchase Price Three months ended Nine months ended June 27, June 29, June 27, June 29, 2020 2019 2020 2019 Net Sales Net Earnings 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 June Practical Expedients and Accounting Policy Elections We elected the package of practical expedients that permits us not to reassess our prior conclusions about lease identification, lease classification and initial direct costs and made an accounting policy election to exclude short-term leases with an initial term of 12 months or less from our Consolidated Balance Sheets. Amounts Recognized in the Financial Statements The components of lease expense were as follows: Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended June 27, 2020 June 27, 2020 June 26, 2021 June 26, 2021 (in thousands) (in thousands) (in thousands) (in thousands) Operating lease cost in Cost of goods sold and Operating Expenses Amortization of assets in Cost of goods sold and Operating Expenses Interest on lease liabilities in Interest expense & other Total finance lease cost Short-term lease cost in Cost of goods sold and Operating Expenses Total net lease cost Supplemental balance sheet information related to leases is as follows: June 27, 2020 (in thousands) Operating Leases Operating lease right-of-use assets Current operating lease liabilities Noncurrent operating lease liabilities Finance Leases Finance lease right-of-use assets in Property, plant and equipment, net Current finance lease liabilities Noncurrent finance lease liabilities Total finance lease liabilities June 26, 2021 (in thousands) Operating Leases Operating lease right-of-use assets Current operating lease liabilities Noncurrent operating lease liabilities Finance Leases Finance lease right-of-use assets in Property, plant and equipment, net Current finance lease liabilities Noncurrent finance lease liabilities Supplemental cash flow information related to leases is as follows: Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended June 27, 2020 June 27, 2020 June 26, 2021 June 26, 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 Operating cash flows from finance leases Financing cash flows from finance leases Supplemental noncash information on lease liabilities arising from obtaining right-of-use assets Supplemental noncash information on lease liabilities removed due to purchase of leased asset As of June (in thousands) (in thousands) Operating Leases Finance Leases Operating Leases Finance Leases Three months ending September 26, 2020 2021 Three months ending September 25, 2021 2022 2023 2024 2025 Thereafter Total minimum payments Less amount representing interest Present value of lease obligations As of June (in thousands) Operating Leases Capital Leases 2020 2021 2022 2023 2024 Thereafter Total minimum payments Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Statements made in this Form 10-Q that are not historical or current facts are “forward-looking statements” made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 (the “Act”) and Section 21E of the Securities Exchange Act of 1934. These statements often can be identified by the use of terms such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” “approximate,” or “continue,” or the negative thereof. We intend that such forward-looking statements be subject to the safe harbors for such statements. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management’s best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties, and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events. Liquidity and Capital Resources Our current cash and cash equivalents balances, investments and cash expected to be provided by future operations are our primary sources of liquidity. We believe that these sources, along with our borrowing capacity, are sufficient to fund future growth and expansion. See Note 11 to these financial statements for a discussion of our investment securities. The Company’s Board of Directors declared a regular quarterly cash dividend of In the three months ended June Our general-purpose bank credit line, which expires in November 2021, provides for up to a $50,000,000 revolving credit facility. The agreement contains restrictive covenants and requires commitment fees in accordance with standard banking practice. There were no outstanding balances under this facility at June RESULTS OF OPERATIONS Net sales FOOD SERVICE Sales to food service customers Soft pretzel sales to the food service market Sales of handhelds Sales of new products in the first twelve months since their introduction were approximately RETAIL SUPERMARKETS Sales of products to retail supermarkets Sales of soft pretzels decreased by 12% in the third quarter Sales of new products in the nine months were approximately $550,000 and were primarily related to frozen novelty items. Price increases had a minimal impact on sales in the third quarter Operating income in our Retail Supermarkets segment FROZEN BEVERAGES Frozen beverage and related product sales increased by 83% to $74,009,000 in the third quarter Beverages sales increased by 157% to Service revenue increased by 32% to $22,789,000 in the third quarter but decreased by 3% to $59,903,000 in the nine Our Frozen Beverage segment CONSOLIDATED Gross profit as a percentage of sales was Total operating expenses increased by 2.5% to $58,030,000 in the third quarter but decreased Marketing expenses decreased Operating income was $38,144,000 in the third quarter compared Our investments generated before tax income of Net earnings in There are many factors which can impact our net earnings from year to year and in the long run, among which are the supply and cost of raw materials and labor, insurance costs, factors impacting sales as noted above, the continuing consolidation of our customers, our ability to manage our manufacturing, marketing and distribution activities, our ability to make and integrate acquisitions and changes in tax laws and interest rates. Item 3. Quantitative and Qualitative Disclosures About Market Risk There has been no material change in the Company’s assessment of its sensitivity to market risk since its presentation set forth, in item 7a. “Quantitative and Qualitative Disclosures About Market Risk,” in its 2020 annual report on Form 10-K filed with the SEC. 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 June 26, 2021, that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. There has been no change in the Company’s internal control over financial reporting during the quarter ended June PART II. OTHER INFORMATION Item 6. Exhibits Exhibit No. 31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 101.1 The following financial information from J&J Snack Foods Corp.'s Quarterly Report on Form 10-Q for the quarter ended June (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Earnings, (iii)Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Cash Flows and (v) the Notes to the Consolidated Financial Statements 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. J & J SNACK FOODS CORP. Dated: July 29, 2021 /s/ Dan Fachner Dated: July 29, 2021 /s/ Ken A. Plunk Expected volatility is based on the historical volatility of the price of our common shares over the past 51 months for 5 year options and 10 years for 10Additionally, 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 $360,000 and $414,000 on June 27, 2020 and September 28, 2019, respectively, all of which would impact our effective tax rate over time, if recognized. We recognize interest and penalties related to uncertain tax positions as a part of the provision for income taxes. As of June 27, 2020, and September 28, 2019, respectively, the Company has $263,000 and $279,000
In addition to our federal tax return and tax returns for Mexico and Canada, we file tax returns in all states that have a corporate income tax with virtually all open for examination for three to four years.Net earnings in last year’s nine months benefitted by a reduction of approximately $900,000 in tax as the provision for the one time repatriation tax as a result of the Tax Cuts and Job Act of 2017 was reduced as the amount recorded the year prior was an estimate. Excluding the reduction in the provision for the one-time repatriation tax, our effective tax rate was 27.5% in last year’s nine months. Note 7In 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. We adopted the guidance on September 29, 2019 using this alternate transition method, but we did not record a cumulative-effect adjustment from initially applying the standard. 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. We have completed the implementation of a lease accounting system to enable the preparation of financial information and have implemented relevant accounting policies and internal controls surrounding the lease accounting process. As a result of adoption, we recognized a right-of-use asset and lease liability of $71 million and $72 million, respectively. The right-of-use asset balance reflects the reclassification of deferred rent and prepaid rent against the initial asset. The adoption did not impact our results of operations or cash flows. See additional lease disclosures in Note 14.In June 2016, the FASB issued guidance to update the methodology used to measure current expected credit losses (CECL). This guidance applies to financial assets measured at amortized cost, including loans, held-to-maturity debt securities, net investments in leases, and trade accounts receivable as well as certain off-balance sheet credit exposures, such as loan commitments. This guidance replaces the current incurred loss impairment methodology with a methodology to reflect CECL and requires consideration of a broader range of reasonable and supportable information to explain credit loss estimates. The guidance must be adopted using a modified retrospective transition method through a cumulative-effect adjustment to retained earnings/(deficit) in the period of adoption. This guidance will be effective beginning in the first quarter of our fiscal year 2021. Early adoption is permitted. We are currently evaluating the impact this guidance will have on our financial statements and related disclosures. $ 51,456 $ 53,225 $ 40,850 $ 40,184 24,679 22,146 29,171 24,550 10,525 9,703 12,080 10,545 33,904 31,091 32,721 33,644 $ 120,564 $ 116,165 $ 114,822 $ 108,923 $2.0 million of inventory was written down in the quarter as we consider it to be unsaleable.15Our three reportable segments are Food Service, Retail Supermarkets and Frozen Beverages. All inter-segment net sales and expenses have been eliminated in computing net sales and operating income. These segments are described below.products including PATIO burritos.products. Within the retail supermarket channel, our frozen and prepackaged products are purchased by the consumer for consumption at home.16Due to a change in management and the reporting of our MARYB’s biscuit operations, which had sales and operating income of $25,316,000 and $1,584,000, respectively, in our 2019 fiscal year, we have reclassified the operations from our Food Service segment to our Retail Supermarket segment, which is reflected in both periods reported. Information regarding the operations in these three reportable segments is as follows: $ 21,384 $ 55,867 $ 116,985 $ 154,670 8,688 13,862 25,222 30,336 7,321 18,888 38,466 49,793 7,448 8,550 22,084 25,339 69,237 90,084 255,016 268,735 2,543 6,105 13,628 19,576 $ 116,621 $ 193,356 $ 471,401 $ 548,449 $ 12,716 $ 7,294 $ 34,874 $ 28,309 33,322 26,515 59,279 52,179 8,151 5,215 21,759 19,437 3,257 3,063 9,135 8,110 (807 ) (962 ) (2,216 ) (2,163 ) 863 642 1,668 1,341 $ 57,502 $ 41,767 $ 124,499 $ 107,213 $ 16,456 $ 56,937 $ 83,606 $ 121,976 17,259 22,514 61,524 62,291 6,363 11,810 27,254 33,875 362 317 1,218 811 $ 40,440 $ 91,578 $ 173,602 $ 218,953 $ 214,563 $ 326,701 $ 769,502 $ 874,615 $ 7,050 $ 6,973 $ 21,208 $ 19,911 468 335 1,156 990 5,864 5,015 17,505 15,059 $ 13,382 $ 12,323 $ 39,869 $ 35,960 $ (18,242 ) $ 21,030 $ 7,743 $ 57,909 7,910 3,775 14,464 9,025 (9,088 ) 14,237 (8,942 ) 18,961 $ (19,420 ) $ 39,042 $ 13,265 $ 85,895 $ 7,865 $ 8,665 $ 26,599 $ 23,346 390 597 1,625 1,730 2,397 6,523 19,413 17,060 $ 10,652 $ 15,785 $ 47,637 $ 42,136 $ 729,331 $ 751,641 $ 729,331 $ 751,641 33,766 24,825 33,766 24,825 294,189 219,224 294,189 219,224 $ 1,057,286 $ 995,690 $ 1,057,286 $ 995,690 $ 50,895 $ 21,384 $ 120,359 $ 116,985 13,927 8,688 30,812 25,222 20,096 7,321 46,358 38,466 18,971 7,448 56,574 22,084 85,706 69,237 257,580 255,016 6,884 2,543 14,546 13,628 $ 196,478 $ 116,621 $ 526,226 $ 471,401 $ 11,193 $ 12,716 $ 40,871 $ 34,874 36,898 33,322 71,600 59,279 4,562 8,151 18,717 21,759 1,191 3,257 6,215 9,135 (513 ) (807 ) (2,196 ) (2,216 ) 526 863 1,652 1,668 $ 53,857 $ 57,502 $ 136,859 $ 124,499 $ 42,279 $ 16,456 $ 76,663 $ 83,606 22,789 17,259 59,903 61,524 8,404 6,363 20,556 27,254 536 362 1,312 1,218 $ 74,009 $ 40,440 $ 158,434 $ 173,602 $ 324,344 $ 214,563 $ 821,519 $ 769,502 $ 6,817 $ 7,050 $ 20,334 $ 21,208 378 468 1,147 1,156 5,469 5,864 16,893 17,505 $ 12,664 $ 13,382 $ 38,374 $ 39,869 $ 17,644 $ (18,242 ) $ 29,879 $ 7,743 9,080 7,910 20,167 14,464 11,420 (9,088 ) (4,094 ) (8,942 ) $ 38,144 $ (19,420 ) $ 45,952 $ 13,265 $ 10,383 $ 7,865 $ 25,915 $ 26,599 93 390 194 1,625 5,151 2,397 8,347 19,413 $ 15,627 $ 10,652 $ 34,456 $ 47,637 $ 779,730 $ 729,331 $ 779,730 $ 729,331 33,405 33,766 33,405 33,766 288,411 294,189 288,411 294,189 $ 1,101,546 $ 1,057,286 $ 1,101,546 $ 1,057,286 27, 202026, 2021 and September 28, 201926, 2020 are as follows: $ 10,408 $ - $ 10,408 $ - 670 603 858 665 19,737 11,247 19,900 9,954 1,690 1,291 1,690 1,227 $ 32,505 $ 13,141 $ 32,856 $ 11,846 $ 12,750 $ - $ 12,750 $ - 676 487 676 389 7,907 4,942 7,979 4,421 $ 21,333 $ 5,429 $ 21,405 $ 4,810 $ 9,315 $ - $ 9,315 $ - 34,900 - 6,900 - 1,439 222 737 102 1,400 983 1,400 933 $ 47,054 $ 1,205 $ 18,352 $ 1,035 $ 100,892 $ 19,775 $ 72,613 $ 17,691 Fully amortized intangible assets have been removed from the June 27, 2020 amounts. Intangible assets of $21,769,000 were added in the frozen beverages segment from the acquisition of ICEE Distributors in the quarter ended December 28, 2019 and $6,933,000 from the acquisition of BAMA ICEE in the quarter ended March 28, 2020.18Amortizing intangible assets are being amortized by the straight-line method over periods ranging from 2 to 20 years and amortization expense is reflected throughout operating expenses. Aggregate amortization expense of intangible assets for the three months ended June 27, 2020 and June 29, 2019 was $831,000 and $836,000, respectively. Aggregate amortization expense of intangible assets for the nine months ended June 27, 2020 and June 29, 2019 was $2,507,000 and $2,521,000, respectively.Estimated amortization expense for the next five fiscal years is approximately $3,100,000 in 2020, $2,500,000 in 2021, $2,300,000 in 2022, $2,300,000 in 2023 and $2,000,000 in 2024. The weighted amortization period of the intangible assets is 10.7 years.Goodwill The carrying amounts of goodwill for the Food Service, Retail Supermarket and Frozen Beverage segments are as follows: Food Retail Frozen Service Supermarket Beverages Total (in thousands) $ 61,189 $ 4,146 $ 57,698 $ 123,033 $ 61,189 $ 4,146 $ 37,176 $ 102,511 Goodwill of $16,973,000 was added in the frozen beverages segment from the acquisition of ICEE Distributors in the quarter ended December 28, 2019 and $3,549,000 from the acquisition of BAMA ICEE in the quarter ended March 28, 2020. ` June 26, 2021 $ 10,408 $ - $ 10,408 $ - 670 670 670 645 13,000 5,863 19,737 11,595 1,690 1,375 1,690 1,312 $ 25,768 $ 7,908 $ 32,505 $ 13,552 $ 12,750 $ - $ 12,750 $ - 676 619 676 519 7,907 5,733 7,907 5,140 $ 21,333 $ 6,352 $ 21,333 $ 5,659 $ 9,315 $ - $ 9,315 $ - 36,100 - 36,100 - 1,439 365 1,439 257 1,400 1,054 1,400 1,002 $ 48,254 $ 1,420 $ 48,254 $ 1,259 $ 95,355 $ 15,680 $ 102,092 $ 20,470 Food Retail Frozen Service Beverages Total (in thousands) $ 61,189 $ 4,146 $ 56,498 $ 121,833 $ 61,189 $ 4,146 $ 56,498 $ 121,833 Level 2Observable inputs, other than Level 1 inputs in active markets, that are observable either directly or indirectly; andLevel 3Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.Marketable securities held to maturity and available for sale consist primarily of investments in mutual funds, preferred stock and corporate bonds. The fair values of mutual funds are based on quoted market prices in active markets and are classified within Level 1 of the fair value hierarchy. The fair values of preferred stock, corporate bonds and certificates of deposit are based on quoted prices for identical or similar instruments in markets that are not active. As a result, preferred stock, corporate bonds and certificates of deposit are classified within Level 2 of the fair value hierarchy. $ 17,470 $ 243 $ 6 $ 17,707 $ 17,470 $ 243 $ 6 $ 17,707 $ 3,588 $ 0 $ 581 $ 3,007 8,107 213 54 8,266 $ 11,695 $ 213 $ 635 $ 11,273 68,078 1,015 32 69,061 $ 68,078 $ 1,015 $ 32 $ 69,061 $ 3,588 $ 0 $ 738 $ 2,850 11,596 116 586 11,126 $ 15,184 $ 116 $ 1,324 $ 13,976 September 26, 2020 $ 9,902 $ 10,041 $ 51,151 $ 51,815 7,568 7,666 16,927 17,246 0 0 0 0 $ 17,470 $ 17,707 $ 68,078 $ 69,061 9,902 10,041 51,151 51,815 $ 7,568 $ 7,666 $ 16,927 $ 17,246 $ (13,839 ) $ (13,839 ) $ (15,587 ) $ (15,587 ) 657 $ 657 2,405 $ 2,405 $ (13,182 ) $ (13,182 ) $ (13,182 ) $ (13,182 ) $ (16,099 ) $ (16,099 ) $ (12,988 ) $ (12,988 ) 41 $ 41 (3,070 ) $ (3,070 ) $ (16,058 ) $ (16,058 ) $ (16,058 ) $ (16,058 ) $ 721 $ 71 $ 792 866 77 943 4,851 1,722 6,573 569 133 702 22,400 6,800 29,200 15,773 3,549 19,322 (210 ) (110 ) (320 ) $ 44,970 $ 12,242 $ 57,212 The amortized cost, unrealized gains and losses, and fair market values of our investment securities held to maturity at June 27, 2020 are summarized as follows: $ 86,171 $ 1,416 $ 75 $ 87,512 960 3 - 963 $ 87,131 $ 1,419 $ 75 $ 88,475 The amortized cost, unrealized gains and losses, and fair market values of our investment securities available for sale at June 27, 2020 are summarized as follows: $ 3,588 $ - $ 786 $ 2,802 11,596 90 1,256 10,430 $ 15,184 $ 90 $ 2,042 $ 13,232 The mutual funds seek current income with an emphasis on maintaining low volatility and overall moderate duration. The Fixed-to-Floating Perpetual Preferred Stock generate fixed income to call dates in 2020 and 2025 and then income is based on a spread above LIBOR if the securities are not called. The mutual funds and Fixed-to-Floating Perpetual Preferred Stock do not have contractual maturities; however, we classify them as long term assets as it is our intent to hold them for a period of over one year, although we may sell some or all of them depending on presently unanticipated needs for liquidity or market conditions. The corporate bonds generate fixed income to maturity dates in 2020 through 2023, with $75 million maturing within 2 years. Our expectation is that we will hold the corporate bonds to their maturity dates and redeem them at our amortized cost.20The amortized cost, unrealized gains and losses, and fair market values of our investment securities held to maturity at September 28, 2019 are summarized as follows: $ 127,571 $ 1,204 $ 36 $ 128,739 2,880 6 - 2,886 $ 130,451 $ 1,210 $ 36 $ 131,625 The amortized cost, unrealized gains and losses, and fair market values of our investment securities available for sale at September 28, 2019 are summarized as follows: $ 5,549 $ - $ 495 $ 5,054 14,598 266 15 14,849 $ 20,147 $ 266 $ 510 $ 19,903 The amortized cost and fair value of the Company’s held to maturity securities by contractual maturity at June 27, 2020 and September 28, 2019 are summarized as follows: June 27, 2020 September 28, 2019 $ 58,268 $ 58,920 $ 51,091 $ 51,325 28,863 29,555 79,360 80,300 - - - - $ 87,131 $ 88,475 $ 130,451 $ 131,625 58,268 58,920 51,091 51,325 $ 28,863 $ 29,555 $ 79,360 $ 80,300 21Proceeds from the redemption and sale of marketable securities were $23,187,000 and $54,125,000 in the three and nine months ended June 27, 2020 and were $6,584,000 and $29,721,000 in the three and nine months ended June 29, 2019, respectively. Losses of $1,746,000 and $410,000 were recorded in the nine months ended June 27, 2020 and June 29, 2019, respectively and losses of $126,000 were recorded in the three months ended June 29, 2019 and gains of $324,000 were recorded in the three months ended June 27, 2020. Unrealized losses of $118,000 and $385,000 were recorded in the three and nine months ended June 29, 2019, respectively and unrealized losses of $1,708,000 were recorded in the nine months ended June 27, 2020 and unrealized gains of $285,000 were recorded in the three months ended June 27, 2020. We use the specific identification method to determine the cost of securities sold.Note 12 Changes to the components of accumulated other comprehensive loss are as follows: $ (16,099 ) $ (12,988 ) 41 (3,070 ) $ (16,058 ) $ (16,058 ) 22 $ (13,044 ) $ - $ (13,044 ) $ (12,079 ) $ 85 $ (11,994 ) 496 - 496 (469 ) - (469 ) - - - - (85 ) (85 ) $ (12,548 ) $ - $ (12,548 ) $ (12,548 ) $ - $ (12,548 )
Note 13 On October 1, 2019, we acquired the assets of ICEE Distributors LLC, based in Bossier City, Louisiana. ICEE Distributors does business in Arkansas, Louisiana and Texas with annual sales of approximately $13 million. Sales and operating income of ICEE Distributors were $3.2 million and $1.1 million for the three months and were $8.0 million and $2.0 million for the nine months ended June 27, 2020.On February 4, 2020, we acquired the assets of BAMA ICEE, based in Birmingham, Alabama does business in Alabama and Georgia with annual sales of approximately $3.5 million. Sales and operating income of BAMA ICEE were $636,000 and $205,000 for the three months and were $1.0 million and $281,000 for the nine months ended June 27, 2020.The preliminary purchase price allocations for the acquisitions are as follows: $ 722 $ 71 $ 793 866 77 943 4,851 1,722 6,573 569 133 702 21,200 6,800 28,000 16,973 3,549 20,522 (210 ) (125 ) (335 ) $ 44,970 $ 12,227 $ 57,197 23The goodwill recognized is attributable to the assembled workforce of ICEE Distributors and certain other strategic intangible assets that do not meet the requirements for recognition separate and apart from goodwill.Acquisition costs of $76,000 are included in other general expense for the nine months ended June 27, 2020.Our unaudited proforma results, giving effect to this acquisition and assuming an acquisition date of September 29, 2018, would have been: (in thousands) $ 214,763 $ 331,839 $ 770,302 $ 885,584 $ (12,648 ) $ 32,143 $ 11,719 $ 70,057 Note 14 – LeasesGeneral Lease Description We have operating leases with initial noncancelable lease terms in excess of one year covering the rental of various facilities and equipment. Certain of these leases contain renewal options and some provide options to purchase during the lease term. Our operating leases include leases for real estate for some of our office and manufacturing facilities as well as manufacturing and non-manufacturing equipment used in our business. The remaining lease terms for these operating leases range from 1 month to 13 years.We have finance leases with initial noncancelable lease terms in excess of one year covering the rental of various equipment. These leases are generally for manufacturing and non-manufacturing equipment used in our business. The remaining lease terms for these finance leases range from 1 year to 6 years.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.2427, 2020,26, 2021, the weighted-average discount rate of our operating and finance leases was 3.3%3.2% and 3.1%3.2%, respectively.25 $ 4,639 $ 12,983 $ 3,846 $ 11,747 Finance lease cost: 84 253 62 216 7 23 5 30 91 276 67 246 - 0 0 $ 4,730 $ 13,259 $ 3,913 $ 11,993 $ 64,615 $ 13,913 56,570 Total operating lease liabilities $ 70,483 $ 789 $ 329 456 $ 785 $3,218,000 of operating lease right of use assets was impaired in our foodservice segment as a result of the pending shutdown of our midwest manufacturing plant. The amount of the impairment was calculated using cash flow projections. $ 51,811 $ 12,780 41,573 Total operating lease liabilities $ 54,353 $ 654 $ 252 417 Total finance lease liabilities $ 669 $ 4,684 $ 13,054 $ 3,860 $ 11,847 $ 84 $ 253 $ 64 $ 237 $ 7 $ 23 $ 23 $ 48 $ - $ 3,105 $ 3,105 $ 1,317 $ 2,671 $ - $ - $ - - 27, 2020,26, 2021, the maturities of lease liabilities were as follows: $ 4,264 $ 115 15,509 349 $ 3,863 $ 117 13,236 156 13,804 203 11,373 91 11,681 133 8,971 95 8,967 133 5,726 61 26,502 27 16,480 70 $ 79,856 $ 833 $ 60,521 $ 717 (9,373 ) (48 ) (6,168 ) (48 ) $ 70,483 $ 785 $ 54,353 $ 669 2627, 2020,26, 2021, the weighted-average remaining term of our operating and finance leases was 7.36.2 years and 4.04.2 years, respectively.As previously disclosed in our 201926 Annual Report on Form 10-K and under the previous lease accounting standard (Topic 840), as of September 28, 2019, future minimum lease payments under noncancelable leases with initial lease terms in excess of one year were as follows: $ 14,814 $ 339 12,686 349 10,491 156 8,971 91 6,988 95 25,588 27 $ 79,538 $ 1,057 Note 15 – Subsequent EventNet Sales for the first4 weeks of our fourth quarter ending September 27, 2020 were down approximately 25% from a year ago. Although we cannot project whether our sales will continue to be down at the same rate for the balance of the quarter, this would be a considerable improvement in our business and we would expect our results of operations to be significantly better in our fourth quarter compared to our third quarter if sales continue at this rate, although our operating results would be materially less than last year. Approximately 2/3 of our sales are to venues and locations that have shut down or sharply curtailed their foodservice operations so we anticipate COVID-19 will continue to have a negative impact on our business. As we have $270 million of cash and marketable securities on our balance sheet, we do not expect to have any liquidity issues, nor do we anticipate a material amount of our assets would be impaired. $.575$.633 per share of its common stock payable on July 7, 2020,12, 2021, to shareholders of record as of the close of business on June 15, 2020.21, 2021. The cash dividend of $.633 per share represents an increase of 10% from the previous quarterly dividend rate of $.575 per share.27In the three months ended March 28, 2020, weWe purchased and retired 65,648 shares of our common stock at a cost of $8,972,292. We did not purchase any other shares of our common stock in this fiscal year nor did we purchase any shares of our common stock in fiscal year 2019.2020, but did not purchase any shares in the nine months ended June 26, 2021. On August 4, 2017 the Company’s Board of Directors authorized the purchase and retirement of 500,000 shares of the Company’s common stock; 318,858 shares remain to be purchased under this authorization.27, 202026, 2021 and June 29, 2019,27, 2020, fluctuations in the valuation of the Mexican and Canadian currencies and the resulting translation of the net assets of our Mexican and Canadian subsidiaries caused an decreasedecreases of $657,000 and $41,000 in accumulated other comprehensive loss, in the 2020 third quarter and a decrease of $496,000 in accumulated other comprehensive loss in the 2019 third quarter.respectively. In the nine-month period,nine months ended June 26, 2021 and June 27, 2020, fluctuations in the valuation of the Mexican and Canadian currencies and the resulting translation of the net assets of our Mexican and Canadian subsidiaries caused a decrease of $2,405,000 and an increase of $3,070,000 in accumulated other comprehensive loss, in the 2020 nine-month period and an increase of $469,000 in accumulated other comprehensive loss in the 2019 nine month period.respectively.27, 2020.26, 2021.decreased $112,138,000 or 34%increased by 51% to $214,563,000 for$324,344,000 in the three monthsthird quarter and decreased $105,113,000 or 12%by 7% to $769,502,000$821,519,000 for the nine months ended June 27, 202026, 2021 compared to the three and nine months ended June 29, 2019,27, 2020, respectively. Excluding sales from the acquisition of ICEE Distributors in October 2019 and BAMA ICEE in February 2020, sales decreased 35% for the quarter and decreased about 13% for the nine months.Sales for the last 5 weeks of the third quarter (our fiscal June) improved to being down approximately 24% from a year ago as parts of the economy that impact our operations began to open up. Approximately 2/3 of the Company’s sales are to venues and locations that have shut down or sharply curtailed their foodservice operations, and therefore we anticipate COVID-19 will continue to have a negative impact on our business. As we have $270 million of cash and marketable securities on our balance sheet, up from $267 million at March 28, 2020, we do not expect to have any liquidity issues, nor do we anticipate a material amount of our assets would be impaired. 28decreased $76,735,000 or 40%increased by 68% in the third quarter to $116,621,000$196,478,000 and decreased $77,048,000 or 14%by 12% to $471,401,000$526,226,000 for the nine months. months, compared to respective prior year periods. Food service venues are approaching pre-COVID capacity levels and more confident consumers are leaving their homes and spending more as the market normalizes. Sales accelerated throughout our key channels led by schools, amusement/recreation, restaurants, c-stores and theaters.decreased 62%increased by 138% to $21,384,000$50,895,000 in the three monthsthird quarter and 24%by 3% to $116,985,000$120,359,000 in the nine months. Frozen juices and ices sales decreased 37%increased by 60% to $8,688,000$13,927,000 in the three monthsthird quarter and decreased 17%increased by 22% to $25,222,000$30,812,000 in the nine months. Churro sales to food service customers were down 61%increased by 174% to $20,096,000 in the third quarter and increased by 21% to $7,321,000 and were down 23% to $38,466,000$46,358,000 in the nine months. Sales of bakery products decreased $20,847,000 or 23%increased by 24% in the third quarter to $85,706,000 and decreased $13,719,000 or 5%increased by 1% to $255,016,000$257,580,000 for the nine months.decreased $1,102,000 or 13%increased by 155% in the third quarter to $18,971,000 and $3,255,000 or 13%by 156% in the nine months. Salesmonths to $56,574,000 led by the continued success of funnel cake decreased 57%, or $3,181,000, to $2,435,000 in the quarter and $5,311,000, or 29%, to $12,997,000 in the nine months. Sales are down across alla new product lines as manydeveloped for one of the venues and locations where our products are sold have been shut down for some or all of the third quarter due to COVID-19.larger wholesale club customers.$600,000$11,762,000 in thisthe third quarter and $4.7 million$38,929,000 in the nine months.months led by the previously noted handheld item. Price increases had a marginal impact on results in the quarter as traffic and volume drove almost all of the sales decline compared to prior year.We had an operating loss in the quarterOperating income in our Food Service segment was $17,644,000 in the third quarter compared with an operating loss of $18,242,000 comparedin the prior year quarter. Operating income in our Food Service segment increased by 286% to operating income of $21,030,000 last year and operating income decreased to $7,743,000 from $57,909,000$29,879,000 in the nine monthsmonths. The increase in operating income was primarily because of lower production and sales volume due to COVID-19. This year’s three months operating lossthe increase in sales which improved margin efficiencies and nine months operating income were impacted by plant shutdown impairment costs of $5.1 million for the pending shutdown of one of our manufacturing plants. We expect to reduce manufacturing overhead and distribution costs by about $7-8 million annually as a result of this plant closure. This year’s quarter and nine months also included approximately $5 million of costs for employee safety and increased COVID-19 compensation. expense leverage.increased $15,735,000 or 38%decreased by 6% to $57,502,000$53,857,000 in the third quarter andbut increased $17,286,000 or 16%by 10% to $136,859,000 in the nine months. Soft pretzelThe decrease in sales forin the current quarter was primarily attributable to the stronger customer demand in the prior year third quarter resulting from the initial responses to the COVID-19 pandemic. During the prior year third quarter, a surge in demand and sales was experienced related to the effects of the rapid changes in consumer purchasing habits.were up 74% to $12,716,000 and up 23% to $34,874,000 for$11,193,000 but increased by 17% in the nine months.months to $40,871,000. Sales of frozen juices and ices increased $6,807,000 or 26%by 11% to $33,322,000$36,898,000 in the third quarter and increased $7,100,000 orby 21% to $71,600,000 in the nine months. Sales of biscuits decreased by 44% to $4,562,000 in the third quarter and by 14% to $18,717,000 in the nine months. Handheld sales to retail supermarket customers increased 6%decreased by 63% to $3,257,000$1,191,000 in the third quarter and 13%by 32% to $9,135,000$6,215,000 in the nine months. Biscuit sales for the third quarter were up 56% to $8,151,000 and 12% to $21,759,000 for the nine months. Sales were generally higher for all product lines as sales in the year ago periods were impacted by lost volume and placements due the price increases implemented in last year’s first quarter and because of increased sales to supermarkets generally since mid-March 2020 due to COVID-19.were approximately $500,000 and were approximately $1.0 million forin the nine months.months, as sales were driven primarily by consumer traffic and volume trends in retail outlets.was $7,910,000increased by 15% to $9,080,000 in this year’sthe third quarter comparedand by 39% to $3,775,000$20,167,000 in last year’sthe nine months. The increases in operating income was primarily attributable to the improvement in operating margins. a 110% increase andbut decreased by 9% to $158,434,000 in the nine months.$14,464,000$42,279,000 in this year’sthe third quarter but decreased by 8% to $76,663,000 in the nine months, comparedwith the majority of the fluctuations attributable to $9,025,000gallon sales. The increase in last year’ssales in the current quarter was led by the amusement channel that experienced sales above pre-COVID 19 levels, and continued traffic increases in the mass merchandise, QSR and theater channels.months primarilymonths. The increase in the quarter was largely due to higher volume.customers accelerating equipment maintenance to support the post COVID-19 recovery.FROZEN BEVERAGESTotal frozen beverage segment sales decreased 56% in the three months to $40,440,000 and 21% to $173,602,000 for the nine months. Beverage sales were down 71% to $16,456,000 in the quarter and down 31% to $83,606,000 in the nine months. Excluding sales from the acquisition of ICEE Distributors in October 2019 and BAMA ICEE in February 2020, total frozen beverage segment sales decreased 60% in the quarter and were down 25% for the nine months and beverage sales decreased 78% for the quarter and 39% for the nine months. Gallon sales were down 72% in the quarter and down 36% in the nine months exclusive of ICEE Distributors’ gallons. Service revenue decreased 23% to $17,259,000 in the third quarter and was down 1% at $61,524,000 in the nine months. Machines revenue (primarily sales of frozen beverage machines) were $6,363,000, a decrease of $5,447,000increased by 32% to $8,404,000 in the third quarter and $27,254,000, a decrease of $6,621,000,but decreased by 25% to $20,556,000 in the nine months, withmonths. Retailers are beginning to re-invest again which helped to accelerate machine revenues in the decrease due to two significant install projects during the prior fiscal year, as well as the slowdown due to COVID-19. Sales are down across all product lines as many of the venues and locations where our products are sold have been shut down for some or all of the third quarter due to COVID-19.quarter.hadgenerated operating income of $11,420,000 in the third quarter compared with an operating loss of $9,088,000 in the prior year third quarter. In the nine months, our Frozen Beverage segment incurred an operating loss of $4,094,000 compared to operating income of $14,237,000 in last year’s quarter andwith an operating loss of $8,942,000 forin the nine months compared to operating income of $18,961,000 lastprior year primarily as a result of lowernine-month period. The comparative performance was impacted by the challenging sales volumeenvironment in the prior year quarter due to COVID-19. This year’s operating income was also impacted by relocation costs of our ICEE’s headquarters of 2.5 million in the nine months. COVID-19 pandemic.17.34%29.7% in the third quarter and 31.02% last year.17.3% in the prior year quarter. Gross profit as a percentage of sales was 23.98%25.2% in the nine monthnine-month period this year and 29.44%24.0% last year. Gross profit percentage decreased for both periods becauseThe increase is largely attributable to the benefit of lower volume in our food serviceincreased sales, favorable product mix and frozen beverages segments, higher costs related to production disruptions due to volume mix changes, expenses related to employee safety and increased COVID-19 compensation and reserves of approximately $1.5 million for inventory.corresponding margin efficiencies.$5,691,000by 5.8% to $161,243,000 in the nine months. As a percentage of net sales, operating expenses decreased from 26.4% to 17.9% in the third quarter and as a percentage of sales increased to 26.4% from 19.1% last year. Forin the nine months operatingfrom 22.2% to 19.6%.$330,000to 6.3% of net sales in the third quarter from 10.2% in prior year and as a percentageto 6.9% in the nine months compared with 8.9% in prior year’s nine-month period. Distribution expenses decreased to 8.4% of net sales in the third quarter from 9.9% in the prior year but increased slightly to 22.3%9.2% in the nine months compared with 9.1% in prior year’s nine-month period. Administrative expenses decreased to 3.2% of net sales in the third quarter from 19.6% last year.3.9% in prior year, and to 3.5% in the nine months compared with 3.7% in prior year’s nine-month period. Operating expenses for both periods thisin the prior year includedwere impacted by $5.1 million of plant shutdown impairment costs forin both the pending shutdown of one of our manufacturing plants. Marketing expenses increased to 10.2% of sales in this year’s quarter from 8.1% last yearthree month, and were 8.9% in the nine months compared to 8.0% of sales in last year’s nine months. Distribution expenses were 9.9% of sales in the third quarter and 7.5% of sales in last year’s quarter and were 9.1% in this year’s nine months compared to 8.1% in last year’s nine months. Administrative expenses were 3.9% of salesnine-month periods.to 3.3% of sales last year in the third quarter and were 3.7% in this year’s nine months compared to 3.4% of sales in last year’s nine months. The percentage increases mentioned above were because of the drop in sales (lower denominators) and our inability to reduce expenses in line with the decrease in sales because of fixed costs that do not fluctuate with sales.30We had an operating loss of $19,420,000 in the three months and operatingprior year. Operating income of $13,265,000increased by 246% to $45,952,000 in the nine months this year compared to operatingas a result of the aforementioned items.$39,042,000 and $85,895,000$470,000 in last years’ three andthe third quarter, a $830,000 decrease from prior year. In the nine months, respectively.our investments generated before tax income of $2,419,000, a 10% decrease from the prior year period. The decrease in before tax investment income compared with prior year was primarily attributable to the decrease in investments held between periods.Investment income decreased to $1,300,000 from $1,953,000 in last year’s quarter due primarily to lower interest rates. Investment income decreased to $2,673,000 from $5,775,000 in the nine month period due to lower interest rates and because of an increase in unrealized losses to $1,708,000 this year from $385,000 last year.We had a net loss of $12,647,000 in the current three month period compared to net earnings of $30,872,000 last year and net earnings decreased $57,031,000, or 83%, to $11,721,000 for the nine month period this year compared to $68,752,000 for the nine month period last year.last year’sthe third quarter were $28,893,000 compared with a loss of $12,647,000 in prior year. Net earnings increased by 213% in the nine months benefitted by a reduction of approximately $900,000 in tax as the provision for the one time repatriation tax as a result of the Tax Cuts and Job Act of 2017 was reduced as the amount recorded the year prior was an estimate. Excluding the reduction in the provision for the one time repatriation tax, our effective tax rate was 27.5% in last year’s nine months.to $36,732,000. Our effective tax rate was 26.2%24% in thisthe nine months compared with 26% in the prior year’s nine months. nine-month period.There has been no material change in the Company’s assessment of its sensitivity to market risk since its presentation set forth, in item 7a. “Quantitative and Qualitative Disclosures About Market Risk,” in its 2017The 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 June 27, 2020,27, 2020,26,2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.ExhibitsExhibit No.31.1 &31.299.5 &99.6Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 200227, 2020,26, 2021, formatted in iXBRL (Inline extensible Business Reporting Language):(i) Consolidated Balance Sheets,(ii) Consolidated Statements of Earnings,(iii) Consolidated Statements of Comprehensive Income,(iv) Consolidated Statements of Cash Flows and(v) the Notes to the Consolidated Financial Statements104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.1)J & J SNACK FOODS CORP.Dated: July 31, 2020By:/s/ Gerald B. ShreiberDan FachnerGerald B. ShreiberPresident and Chief Executive Officer(Principal Executive Officer) Chairman of the Board,Ken A. Plunk, Senior ViceChief ExecutiveOfficer and Director(Principal Executive Officer)Dated: July 31, 2020/s/ Dennis G. MooreDennis G. Moore, Senior VicePresident and Chief Financial Officer Officer and Director (Principal Financial Officer) (Principal Accounting Officer) 3233