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 25,December 24, 2022
or
| ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File Number: 0-14616
J & J&J SNACK FOODS CORP.
(Exact name of registrant as specified in its charter)
New Jersey | 22-1935537 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
6000 Central Highway, Pennsauken, 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
At July 29, 2022As of January 31, 2023 there were 19,192,25119,229,330 shares of the Registrant’s Common Stock outstanding.
INDEX
Page Number | ||
Part I. | Financial Information | |
Item l. | Consolidated Financial Statements | |
Consolidated Balance Sheets – | 3 | |
Consolidated Statements of Earnings (unaudited) – Three Months Ended December 24, 2022 and December 25, 2021 | 4 | |
| ||
Consolidated Statements of Comprehensive Income (unaudited) – Three | 5 | |
Consolidated Statements of Changes In Stockholders’ Equity (unaudited) – Three | 6 | |
Consolidated Statements of Cash Flows (unaudited) – | 7 | |
Notes to the Consolidated Financial Statements (unaudited) |
| |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
|
Item 4. | Controls and Procedures |
|
Part II. | Other Information |
|
Item 6. | 35 |
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
J & J SNACK FOODS CORP. AND SUBSIDIARIES |
CONSOLIDATED BALANCE SHEETS |
(in thousands, except share amounts) |
June 25, | December 24, | |||||||||||||||
2022 | September 25, | 2022 | September 24, | |||||||||||||
(unaudited) | 2021 | (unaudited) | 2022 | |||||||||||||
Assets | ||||||||||||||||
Current assets | ||||||||||||||||
Cash and cash equivalents | $ | 81,283 | $ | 283,192 | $ | 54,866 | $ | 35,181 | ||||||||
Marketable securities held to maturity | 4,520 | 7,980 | 2,008 | 4,011 | ||||||||||||
Accounts receivable, net | 253,469 | 162,939 | 187,321 | 208,178 | ||||||||||||
Inventories | 173,948 | 123,160 | 182,642 | 180,473 | ||||||||||||
Prepaid expenses and other | 10,519 | 7,498 | 14,473 | 16,794 | ||||||||||||
Total current assets | 523,739 | 584,769 | 441,310 | 444,637 | ||||||||||||
Property, plant and equipment, at cost | ||||||||||||||||
Land | 3,714 | 2,494 | 3,714 | 3,714 | ||||||||||||
Buildings | 34,742 | 26,582 | 34,232 | 34,232 | ||||||||||||
Plant machinery and equipment | 367,297 | 343,716 | 384,749 | 374,566 | ||||||||||||
Marketing equipment | 266,915 | 258,624 | 280,172 | 274,904 | ||||||||||||
Transportation equipment | 11,780 | 10,315 | 12,306 | 11,685 | ||||||||||||
Office equipment | 45,518 | 34,648 | 46,073 | 45,865 | ||||||||||||
Improvements | 47,922 | 45,578 | 49,544 | 49,331 | ||||||||||||
Construction in progress | 54,537 | 35,285 | 80,453 | 65,753 | ||||||||||||
Total Property, plant and equipment, at cost | 832,425 | 757,242 | 891,243 | 860,050 | ||||||||||||
Less accumulated depreciation and amortization | 513,851 | 490,055 | 537,873 | 524,683 | ||||||||||||
Property, plant and equipment, net | 318,574 | 267,187 | 353,370 | 335,367 | ||||||||||||
Other assets | ||||||||||||||||
Goodwill | 188,467 | 121,833 | 184,420 | 184,420 | ||||||||||||
Other intangible assets, net | 196,407 | 77,776 | 190,027 | 191,732 | ||||||||||||
Marketable securities held to maturity | 0 | 4,047 | ||||||||||||||
Marketable securities available for sale | 5,608 | 10,084 | 4,371 | 5,708 | ||||||||||||
Operating lease right-of-use assets | 54,990 | 54,555 | 50,063 | 51,137 | ||||||||||||
Other | 3,457 | 1,968 | 3,987 | 3,965 | ||||||||||||
Total other assets | 448,929 | 270,263 | 432,868 | 436,962 | ||||||||||||
Total Assets | $ | 1,291,242 | $ | 1,122,219 | $ | 1,227,548 | $ | 1,216,966 | ||||||||
Liabilities and Stockholders' Equity | ||||||||||||||||
Current Liabilities | ||||||||||||||||
Current finance lease liabilities | $ | 189 | $ | 182 | $ | 128 | $ | 124 | ||||||||
Accounts payable | 128,551 | 96,789 | 91,610 | 108,146 | ||||||||||||
Accrued insurance liability | 14,892 | 16,260 | 16,014 | 15,678 | ||||||||||||
Accrued liabilities | 10,121 | 10,955 | 9,642 | 9,214 | ||||||||||||
Current operating lease liabilities | 14,062 | 13,395 | 13,219 | 13,524 | ||||||||||||
Accrued compensation expense | 19,038 | 17,968 | 16,104 | 21,700 | ||||||||||||
Dividends payable | 12,138 | 12,080 | 13,461 | 13,453 | ||||||||||||
Total current liabilities | 198,991 | 167,629 | 160,178 | 181,839 | ||||||||||||
Long-term debt | 125,000 | 0 | 92,000 | 55,000 | ||||||||||||
Noncurrent finance lease liabilities | 318 | 392 | 303 | 254 | ||||||||||||
Noncurrent operating lease liabilities | 46,017 | 46,557 | 41,883 | 42,660 | ||||||||||||
Deferred income taxes | 61,350 | 61,578 | 69,873 | 70,407 | ||||||||||||
Other long-term liabilities | 3,667 | 409 | 3,575 | 3,637 | ||||||||||||
Stockholders' Equity | ||||||||||||||||
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 19,184,000 and 19,084,000 respectively | 90,274 | 73,597 | ||||||||||||||
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 19,229,000 and 19,219,000 respectively | 96,550 | 94,026 | ||||||||||||||
Accumulated other comprehensive loss | (13,374 | ) | (13,383 | ) | (12,842 | ) | (13,713 | ) | ||||||||
Retained Earnings | 778,999 | 785,440 | 776,028 | 782,856 | ||||||||||||
Total stockholders' equity | 855,899 | 845,654 | 859,736 | 863,169 | ||||||||||||
Total Liabilities and Stockholders' Equity | $ | 1,291,242 | $ | 1,122,219 | $ | 1,227,548 | $ | 1,216,966 |
The accompanying notes are an integral part of these statements. |
J & J SNACK FOODS CORP. AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF EARNINGS |
(Unaudited) |
|
Three Months Ended |
Nine Months Ended | Three months ended | ||||||||||||||||||||||
June 25, | June 26, | June 25, | June 26, | December 24, | December 25, | |||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
Net sales | $ | 380,227 | $ | 324,344 | $ | 980,230 | $ | 821,519 | ||||||||||||||||
Net Sales | $ | 351,343 | $ | 318,490 | ||||||||||||||||||||
Cost of goods sold | 271,151 | 228,170 | 726,431 | 614,324 | 260,488 | 239,115 | ||||||||||||||||||
Gross profit | 109,076 | 96,174 | 253,799 | 207,195 | ||||||||||||||||||||
Gross Profit | 90,855 | 79,375 | ||||||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||
Marketing | 24,002 | 20,502 | 65,945 | 56,995 | 23,699 | 20,907 | ||||||||||||||||||
Distribution | 48,157 | 27,311 | 109,821 | 75,643 | 42,049 | 33,315 | ||||||||||||||||||
Administrative | 15,724 | 10,348 | 37,812 | 29,004 | 16,391 | 10,369 | ||||||||||||||||||
Other general expense | (67 | ) | (131 | ) | 28 | (399 | ) | |||||||||||||||||
Total operating expenses | 87,816 | 58,030 | 213,606 | 161,243 | ||||||||||||||||||||
Other general (income) | (612 | ) | (61 | ) | ||||||||||||||||||||
Total Operating Expenses | 81,527 | 64,530 | ||||||||||||||||||||||
Operating income | 21,260 | 38,144 | 40,193 | 45,952 | ||||||||||||||||||||
Operating Income | 9,328 | 14,845 | ||||||||||||||||||||||
Other income (expense) | ||||||||||||||||||||||||
Investment income | 106 | 470 | 537 | 2,419 | 685 | 271 | ||||||||||||||||||
Interest expense & other | (156 | ) | (8 | ) | (231 | ) | (19 | ) | ||||||||||||||||
Interest expense | (1,049 | ) | (18 | ) | ||||||||||||||||||||
Earnings before income taxes | 21,210 | 38,606 | 40,499 | 48,352 | 8,964 | 15,098 | ||||||||||||||||||
Income taxes | 5,647 | 9,713 | 10,574 | 11,620 | ||||||||||||||||||||
Income tax expense | 2,331 | 4,007 | ||||||||||||||||||||||
NET EARNINGS | $ | 15,563 | $ | 28,893 | $ | 29,925 | $ | 36,732 | $ | 6,633 | $ | 11,091 | ||||||||||||
Earnings per diluted share | $ | 0.81 | $ | 1.51 | $ | 1.56 | $ | 1.92 | $ | 0.34 | $ | 0.58 | ||||||||||||
Weighted average number of diluted shares | 19,234 | 19,185 | 19,198 | 19,116 | 19,274 | 19,153 | ||||||||||||||||||
Earnings per basic share | $ | 0.81 | $ | 1.52 | $ | 1.56 | $ | 1.93 | $ | 0.35 | $ | 0.58 | ||||||||||||
Weighted average number of basic shares | 19,174 | 19,045 | 19,131 | 18,996 | 19,222 | 19,085 |
The accompanying notes are an integral part of these statements. |
J | ||||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||
(Unaudited) | ||||
(in thousands) |
Three Months Ended | Nine Months Ended | |||||||||||||||
June 25, | June 26, | June 25, | June 26, | |||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Net earnings | $ | 15,563 | $ | 28,893 | $ | 29,925 | $ | 36,732 | ||||||||
Foreign currency translation adjustments | (93 | ) | 657 | 9 | 2,405 | |||||||||||
Total other comprehensive (loss) income | (93 | ) | 657 | 9 | 2,405 | |||||||||||
Comprehensive income | $ | 15,470 | $ | 29,550 | $ | 29,934 | $ | 39,137 |
Three months ended | ||||||||
December 24, | December 25, | |||||||
2022 | 2021 | |||||||
Net Earnings | $ | 6,633 | $ | 11,091 | ||||
Foreign currency translation adjustments | 871 | (444 | ) | |||||
Total Other Comprehensive Income (Loss) | 871 | (444 | ) | |||||
Comprehensive Income | $ | 7,504 | $ | 10,647 |
The accompanying notes are an integral part of these statements. |
J & J SNACK FOODS CORP. AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY |
(in thousands) |
Accumulated | ||||||||||||||||||||
Other | ||||||||||||||||||||
Common Stock | Comprehensive | Retained | ||||||||||||||||||
Shares | Amount | Loss | Earnings | Total | ||||||||||||||||
Balance as September 24, 2022 | 19,219 | $ | 94,026 | $ | (13,713 | ) | $ | 782,856 | $ | 863,169 | ||||||||||
Issuance of common stock upon exercise of stock options | 10 | 1,285 | - | - | 1,285 | |||||||||||||||
Foreign currency translation adjustment | - | - | 871 | - | 871 | |||||||||||||||
Dividends declared | - | - | - | (13,461 | ) | (13,461 | ) | |||||||||||||
Share-based compensation | - | 1,239 | - | - | 1,239 | |||||||||||||||
Net earnings | - | - | - | 6,633 | 6,633 | |||||||||||||||
Balance at December 24, 2022 | 19,229 | $ | 96,550 | $ | (12,842 | ) | $ | 776,028 | $ | 859,736 |
Accumulated | ||||||||||||||||||||
Other | ||||||||||||||||||||
Common Stock | Comprehensive | Retained | ||||||||||||||||||
Shares | Amount | Loss | Earnings | Total | ||||||||||||||||
Balance as September 25, 2021 | 19,084 | $ | 73,597 | $ | (13,383 | ) | $ | 785,440 | $ | 845,654 | ||||||||||
Issuance of common stock upon exercise of stock options | 5 | 706 | - | - | 706 | |||||||||||||||
Foreign currency translation adjustment | - | - | (444 | ) | - | (444 | ) | |||||||||||||
Dividends declared | - | - | - | (12,092 | ) | (12,092 | ) | |||||||||||||
Share-based compensation | - | 1,083 | - | - | 1,083 | |||||||||||||||
Net earnings | - | - | - | 11,091 | 11,091 | |||||||||||||||
Balance at December 25, 2021 | 19,089 | $ | 75,386 | $ | (13,827 | ) | $ | 784,439 | $ | 845,998 |
The accompanying notes are an integral part of these statements. |
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Accumulated | ||||||||||||||||||||
Other | ||||||||||||||||||||
Common Stock | Comprehensive | Retained | ||||||||||||||||||
Shares | Amount | Loss | Earnings | Total | ||||||||||||||||
Balance as September 25, 2021 | 19,084 | $ | 73,597 | $ | (13,383 | ) | $ | 785,440 | $ | 845,654 | ||||||||||
Issuance of common stock upon exercise of stock options | 5 | 706 | 0 | 0 | 706 | |||||||||||||||
Foreign currency translation adjustment | - | 0 | (444 | ) | 0 | (444 | ) | |||||||||||||
Dividends declared | - | 0 | 0 | (12,092 | ) | (12,092 | ) | |||||||||||||
Share-based compensation | - | 1,083 | 0 | 0 | 1,083 | |||||||||||||||
Net earnings | - | 0 | 0 | 11,091 | 11,091 | |||||||||||||||
Balance at December 25, 2021 | 19,089 | $ | 75,386 | $ | (13,827 | ) | $ | 784,439 | $ | 845,998 | ||||||||||
Issuance of common stock upon exercise of stock options | 76 | 10,012 | 0 | 0 | 10,012 | |||||||||||||||
Issuance of common stock for employee stock purchase plan | 8 | 1,023 | 0 | 0 | 1,023 | |||||||||||||||
Foreign currency translation adjustment | - | 0 | 546 | 0 | 546 | |||||||||||||||
Dividends declared | - | 0 | 0 | (12,136 | ) | (12,136 | ) | |||||||||||||
Share-based compensation | - | 1,267 | 0 | 0 | 1,267 | |||||||||||||||
Net earnings | - | 0 | 0 | 3,271 | 3,271 | |||||||||||||||
Balance at March 26, 2022 | 19,173 | $ | 87,688 | $ | (13,281 | ) | $ | 775,574 | $ | 849,981 | ||||||||||
Issuance of common stock upon exercise of stock options | 11 | 1,452 | 0 | 0 | 1,452 | |||||||||||||||
Issuance of common stock for employee stock purchase plan | - | - | - | - | - | |||||||||||||||
Foreign currency translation adjustment | - | 0 | (93 | ) | 0 | (93 | ) | |||||||||||||
Dividends declared | - | 0 | 0 | (12,138 | ) | (12,138 | ) | |||||||||||||
Share-based compensation | - | 1,134 | 0 | 0 | 1,134 | |||||||||||||||
Net earnings | - | 0 | 0 | 15,563 | 15,563 | |||||||||||||||
Balance at June 25, 2022 | 19,184 | $ | 90,274 | $ | (13,374 | ) | $ | 778,999 | $ | 855,899 |
Accumulated | ||||||||||||||||||||
Other | ||||||||||||||||||||
Common Stock | Comprehensive | Retained | ||||||||||||||||||
Shares | Amount | Loss | Earnings | Total | ||||||||||||||||
Balance as September 26, 2020 | 18,915 | $ | 49,268 | $ | (15,587 | ) | $ | 775,817 | $ | 809,498 | ||||||||||
Issuance of common stock upon exercise of stock options | 41 | 4,390 | 0 | 0 | 4,390 | |||||||||||||||
Foreign currency translation adjustment | - | 0 | 2,279 | 0 | 2,279 | |||||||||||||||
Dividends declared | - | 0 | 0 | (10,900 | ) | (10,900 | ) | |||||||||||||
Share-based compensation | - | 1,244 | 0 | 0 | 1,244 | |||||||||||||||
Net earnings | - | 0 | 0 | 1,778 | 1,778 | |||||||||||||||
Balance at December 26, 2020 | 18,956 | $ | 54,902 | $ | (13,308 | ) | $ | 766,695 | $ | 808,289 | ||||||||||
Issuance of common stock upon exercise of stock options | 72 | 8,384 | 0 | 0 | 8,384 | |||||||||||||||
Issuance of common stock for employee stock purchase plan | 6 | 714 | 0 | 0 | 714 | |||||||||||||||
Foreign currency translation adjustment | - | 0 | (531 | ) | 0 | (531 | ) | |||||||||||||
Dividends declared | - | 0 | 0 | (10,943 | ) | (10,943 | ) | |||||||||||||
Share-based compensation | - | 1,026 | 0 | 0 | 1,026 | |||||||||||||||
Net earnings | - | 0 | 0 | 6,061 | 6,061 | |||||||||||||||
Balance at March 27, 2021 | 19,034 | $ | 65,026 | $ | (13,839 | ) | $ | 761,813 | $ | 813,000 | ||||||||||
Issuance of common stock upon exercise of stock options | 27 | 3,564 | 0 | 0 | 3,564 | |||||||||||||||
Issuance of common stock for employee stock purchase plan | - | - | - | - | - | |||||||||||||||
Foreign currency translation adjustment | - | 0 | 657 | 0 | 657 | |||||||||||||||
Dividends declared | - | 0 | 0 | (12,066 | ) | (12,066 | ) | |||||||||||||
Share-based compensation | - | 982 | 0 | 0 | 982 | |||||||||||||||
Net earnings | - | 0 | 0 | 28,893 | 28,893 | |||||||||||||||
Balance at June 26, 2021 | 19,061 | $ | 69,572 | $ | (13,182 | ) | $ | 778,640 | $ | 835,030 |
The accompanying notes are an integral part of these statements.
J & J SNACK FOODS CORP. AND SUBSIDIARIES | |||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||
(Unaudited) | |||||||
|
Nine Months Ended | Three months ended | |||||||||||||||
June 25, | June 26, | December 24, | December 25, | |||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Operating activities: | ||||||||||||||||
Net earnings | $ | 29,925 | $ | 36,732 | $ | 6,633 | $ | 11,091 | ||||||||
Adjustments to reconcile net earnings to net cash (used in) provided by operating activities: | ||||||||||||||||
Adjustments to reconcile net earnings to net cash provided by operating activities | ||||||||||||||||
Depreciation of fixed assets | 36,292 | 36,278 | 13,476 | 11,923 | ||||||||||||
Amortization of intangibles and deferred costs | 1,775 | 2,096 | 1,705 | 588 | ||||||||||||
Loss from disposals of property & equipment | 50 | 0 | ||||||||||||||
Gains from disposals of property & equipment | (711 | ) | (27 | ) | ||||||||||||
Share-based compensation | 3,484 | 3,252 | 1,239 | 1,083 | ||||||||||||
Deferred income taxes | (227 | ) | (188 | ) | (526 | ) | (529 | ) | ||||||||
Loss (Gain) on marketable securities | 412 | (926 | ) | |||||||||||||
Loss on marketable securities | 37 | 44 | ||||||||||||||
Other | (212 | ) | (305 | ) | (18 | ) | (4 | ) | ||||||||
Changes in assets and liabilities net of effects from purchase of companies | ||||||||||||||||
Increase in accounts receivable | (78,058 | ) | (27,940 | ) | ||||||||||||
Increase in inventories | (42,784 | ) | (5,964 | ) | ||||||||||||
(Increase) decrease in prepaid expenses | (102 | ) | 5,710 | |||||||||||||
Increase in accounts payable and accrued liabilities | 19,798 | 24,823 | ||||||||||||||
Net cash (used in) provided by operating activities | (29,647 | ) | 73,568 | |||||||||||||
Changes in assets and liabilities, net of effects from purchase of companies | ||||||||||||||||
Decrease in accounts receivable | 21,171 | 231 | ||||||||||||||
(Increase) in inventories | (2,284 | ) | (9,958 | ) | ||||||||||||
Decrease in prepaid expenses | 2,343 | 719 | ||||||||||||||
(Decrease) in accounts payable and accrued liabilities | (21,655 | ) | (9,707 | ) | ||||||||||||
Net cash provided by operating activities | 21,410 | 5,454 | ||||||||||||||
Investing activities: | ||||||||||||||||
Payments for purchases of companies, net of cash acquired | (221,301 | ) | 0 | |||||||||||||
Purchases of property, plant and equipment | (64,231 | ) | (34,456 | ) | (30,910 | ) | (16,100 | ) | ||||||||
Proceeds from redemption and sales of marketable securities | 11,526 | 54,191 | 3,300 | 7,200 | ||||||||||||
Proceeds from disposal of property and equipment | 1,147 | 2,079 | 729 | 231 | ||||||||||||
Other | 0 | 42 | ||||||||||||||
Net cash (used in) provided by investing activities | (272,859 | ) | 21,856 | |||||||||||||
Net cash used in investing activities | (26,881 | ) | (8,669 | ) | ||||||||||||
Financing activities: | ||||||||||||||||
Proceeds from issuance of stock | 12,168 | 17,178 | 1,285 | 706 | ||||||||||||
Borrowings under credit facility | 125,000 | 0 | 72,000 | - | ||||||||||||
Payments for debt issue costs | (225 | ) | 0 | |||||||||||||
Repayment of borrowings under credit facility | (35,000 | ) | - | |||||||||||||
Payments on finance lease obligations | (150 | ) | (48 | ) | (39 | ) | (74 | ) | ||||||||
Payment of cash dividend | (36,299 | ) | (32,719 | ) | ||||||||||||
Payment of cash dividends | (13,453 | ) | (12,080 | ) | ||||||||||||
Net cash provided by (used in) financing activities | 100,494 | (15,589 | ) | 24,793 | (11,448 | ) | ||||||||||
Effect of exchange rate on cash and cash equivalents | 103 | 624 | ||||||||||||||
Net (decrease) increase in cash and cash equivalents | (201,909 | ) | 80,459 | |||||||||||||
Effect of exchange rates on cash and cash equivalents | 363 | (69 | ) | |||||||||||||
Net increase (decrease) in cash and cash equivalents | 19,685 | (14,732 | ) | |||||||||||||
Cash and cash equivalents at beginning of period | 283,192 | 195,809 | 35,181 | 283,192 | ||||||||||||
Cash and cash equivalents at end of period | $ | 81,283 | $ | 276,268 | $ | 54,866 | $ | 268,460 |
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 | Basis of Presentation 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 Company’s financial position and the results of operations and cash flows.
The results of operations for the three and nine months ended JuneDecember 24, 2022 and December 25, 2022 and June 26, 2021 are not necessarily indicative of results for the full year. Sales of our frozen beverages and frozen novelties are generally higher in the fiscal third and fourth quarters due to warmer weather. Also, approximately 2/3 of our sales are to venues and locations that previously shut down or sharply curtailed their foodservice operations as a result of COVID-19. While the majority of these venues have reopened, the extent of the future impact of COVID-19 on our operations depends on future developments of the virus and its effects which are uncertain at this time.
While we believe that the disclosures presented are adequate to make the information not misleading, we suggestit is suggested that these consolidated financial statements be read in conjunction with the audited consolidated financial statements and the notes included in the Company’s Annual Report on Form 10-K10-K for the fiscal year ended September 25, 2021.24, 2022.
Note 2 | Business Combinations On June 21, 2022, J & J Snack Foods Corp. and its wholly-owned subsidiary, DD Acquisition Holdings, LLC, completed the acquisition of one hundred percent (100%) of the equity interests of Dippin’ Dots Holding, L.L.C. (“Dippin’ Dots”) which, through its wholly-owned subsidiaries, owns and operates the Dippin’ Dots and Doc Popcorn businesses. The purchase price was approximately |
Dippin’ Dots is a leading producer of flash-frozen beaded ice cream treats, and the acquisition will leverage synergies in entertainment and amusement locations, theaters, and convenience to continue to expand our business. The acquisition also includes the Doc Popcorn business operated by Dippin’ Dots.
The financial results of Dippin’ Dots have been included in our consolidated financial statements since the date of the acquisition. Sales and net earnings (loss) of Dippin’ Dots since the date of acquisition were $2,218,000$13.4 million and $621,000($0.7) million for the three and nine-months months ended June 25,December 24, 2022. Dippin’ Dots is reported as part of our Food Service segment. Included within Administrative expenses for the quarter were $3,088,000 of acquisition costs.
Upon acquisition, the assets and liabilities of Dippin’ Dots were adjusted to their respective fair values as of the closing date of the transaction, including the identifiable intangible assets acquired. In addition, the excess of the purchase price over the fair value of the net assets acquired has been recorded as goodwill. The fair value estimates used in valuing certain acquired assets and liabilities are based, in part, on inputs that are unobservable. For intangible assets, these include, but are not limited to, forecasted future cash flows, revenue growth rates, attrition rates and discount rates.
The purchase price allocation as of the date of acquisition was based on a preliminary valuation and is subject to revision as more detailed analyses are completed and additional information about the fair value of assets acquired and liabilities assumed becomes available.
In fiscal year 2022, we recorded measurement period adjustments to the estimated fair values initially recorded on June 21, 2022, which resulted in an increase to Property, plant, and equipment, net of $6.5 million, and reductions in Goodwill, Identifiable intangible assets, and Inventories of $4.0 million, $2.2 million, and $0.3 million, respectively. The measurement period adjustments were recorded to better reflect market participant assumptions about facts and circumstances existing as of the acquisition date and did not have a material impact on our consolidated statement of income for the year ended September 24, 2022. No measurement period adjustments were recorded in fiscal year 2023.
The major classes of assets and liabilities to which we have preliminarily allocated the purchase price were as follows:
Preliminary Dippin' Dots Purchase Price Allocation (1)
Preliminary Dippin' Dots Purchase Price Allocation (1) |
Preliminary Value | ||||||||||||||||
as of acquisition | ||||||||||||||||
date (as previously | Measurement | |||||||||||||||
(in thousands) | reported as of | Period | ||||||||||||||
June 21, | June 25,2022) | Adjustment | As Adjusted | |||||||||||||
2022 | (in thousands) | |||||||||||||||
Cash and cash equivalents | $ | 2,259 | $ | 2,259 | $ | 2,259 | ||||||||||
Accounts receivable, net | 12,257 | 12,257 | 12,257 | |||||||||||||
Inventories | 8,812 | 8,812 | (301 | ) | 8,511 | |||||||||||
Prepaid expenses and other | 1,215 | 1,215 | 1,215 | |||||||||||||
Property, plant and equipment, net | 24,622 | 24,622 | 6,548 | 31,170 | ||||||||||||
Intangible assets | 120,400 | 120,400 | (2,200 | ) | 118,200 | |||||||||||
Goodwill(2) | 66,634 | 66,634 | (4,047 | ) | 62,587 | |||||||||||
Operating lease right-of-use assets | 3,514 | 3,514 | 3,514 | |||||||||||||
Other noncurrent assets | 243 | 243 | 243 | |||||||||||||
Total assets acquired | 239,956 | 239,956 | - | 239,956 | ||||||||||||
Liabilities assumed: | ||||||||||||||||
Current lease liabilities | 619 | 619 | 619 | |||||||||||||
Accounts payable | 6,005 | 6,005 | 6,005 | |||||||||||||
Other current liabilities | 3,532 | 3,532 | 3,532 | |||||||||||||
Noncurrent lease liabilities | 2,954 | 2,954 | 2,954 | |||||||||||||
Other noncurrent liabilities | 3,285 | 3,285 | 3,285 | |||||||||||||
Total liabilities acquired | 16,395 | 16,395 | - | 16,395 | ||||||||||||
Purchase price | $ | 223,561 | $ | 223,561 | $ | - | $ | 223,561 |
| (1) Due to the limited time since the date of the acquisition, the purchase price allocation remains preliminary. | |||||||
(2) Goodwill was assigned to our Food Services segment and was primarily attributed to the assembled workforce of the acquired business and to our expectations of favorable growth opportunities in entertainment and amusement locations, theaters, and convenience based on increased synergies that are expected to be achieved from the integration of Dippin’ Dots. |
Acquired Intangible Assets | ||||||||
(in thousands) | ||||||||
Weighted average | June 21, | |||||||
life (years) | 2022 | |||||||
Amortizable | ||||||||
Trade name | indefinite | 76,900 | ||||||
Customer relationships | 10 | 12,100 | ||||||
Technology | 10 | 22,900 | ||||||
Franchise agreements | 10 | 8,500 | ||||||
Total acquired intangible assets | 120,400 |
Acquired Intangible Assets |
(in thousands) | ||||||||
Weighted average | June 21, | |||||||
life (years) | 2022 | |||||||
Amortizable | ||||||||
Trade name | indefinite | $ | 76,900 | |||||
Developed technology | 10 | 22,900 | ||||||
Customer relationships | 10 | 9,900 | ||||||
Franchise agreements | 10 | 8,500 | ||||||
Total acquired intangible assets | $ | 118,200 |
Dippin' Dots Results Included in the Company's Consolidated Results |
Three months ended | ||||
December 24, | ||||
2022 | ||||
(in thousands) | ||||
Net sales | $ | 13,378 | ||
Net earnings (loss) | $ | (667 | ) |
Dippin' Dots Results Included in the Company's Consolidated Results
(in thousands) | ||||||||
Three Months ended | Nine Months ended | |||||||
June 25, | June 25, | |||||||
2022 | 2022 | |||||||
Net sales | $ | 2,218 | $ | 2,218 | ||||
Net earnings | $ | 621 | $ | 621 |
The following unaudited pro forma information presents the consolidated results of operations as if the business combination in 2022 had occurred as of September 27, 2020, after giving effect to acquisition-related adjustments, including: (1) depreciation and amortization of assets; (2) amortization of unfavorable contracts related to the fair value adjustments of the assets acquired; (3) change in the effective tax rate; (4) interest expense on any debt incurred to fund the acquisitions which would have been incurred had such acquisitions occurred as of September 27, 2020; and (5) merger and acquisition costs.
J & J Snack Foods Corp and Dippin' Dots Unaudited Pro Forma Combined Financial Information
(in thousands) | ||||||||||||||||
Three Months ended | Nine Months ended | |||||||||||||||
June 25, | June 26, | June 25, | June 26, | |||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Net sales | $ | 404,182 | $ | 349,722 | $ | 1,028,079 | $ | 861,536 | ||||||||
Net earnings | $ | 17,838 | $ | 33,980 | $ | 31,501 | $ | 35,893 | ||||||||
Earnings per diluted share | $ | 0.93 | $ | 1.77 | $ | 1.64 | $ | 1.88 | ||||||||
Weighted average number of diluted shares | 19,234 | 19,185 | 19,198 | 19,116 |
The pro forma information does not reflect the potential benefits of cost and funding synergies, opportunities to earn additional revenues, or other factors, and therefore does not represent what the actual Net sales and Net earnings would have been had the companies actually been combined as of this date.
Note 3 | Revenue Recognition |
Revenue RecognitionWe recognize revenue in accordance with ASC 606, “Revenue from Contracts with Customers.”
When Performance Obligations Are Satisfied
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account for revenue recognition. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.
The singular performance obligation of our customer contracts for product and machine sales is determined by each individual purchase order and the respective products ordered, with revenue being recognized at a point-in-time when the obligation under the terms of the agreement is satisfied and product control is transferred to our customer. Specifically, control transfers to our customers when the product is delivered to, installed or picked up by our customers based upon applicable shipping terms, as our customers can direct the use and obtain substantially all of the remaining benefits from the product at this point in time. The performance obligations in our customer contracts for product are generally satisfied within 30 days.
The singular performance obligation of our customer contracts for time and material repair and maintenance equipment service is the performance of the repair and maintenance with revenue being recognized at a point-in-time when the repair and maintenance is completed.
The singular performance obligation of our customer repair and maintenance equipment service contracts is the performance of the repair and maintenance with revenue being recognized over the time the service is expected to be performed. Our customers are billed for service contracts in advance of performance and therefore we have a contract liability recorded within Accrued liabilities on our balance sheet.
The Company is entitled to royalties under its agreements with franchisees. Sales-based royalties are related entirely to the Company’s performance obligation under the franchise agreements and are recognized on a monthly basis. Purchase-based royalties are related entirely to the Company’s performance obligation under the franchise agreements and are recognized on a weekly basis.
Under franchise agreements, the Company provides franchisees with a franchise license allowing the use of brand intellectual property and certain ongoing services. As the performance obligations are satisfied, over time, franchise, renewal and transfer fees are recognized on a straight-line basis over the terms of the franchise agreement.
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 $16,907,000approximately $12.1 million at June 25,December 24, 2022 and $14,646,000$14.7 million at September 25, 2021.24, 2022.
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
Contract liabilities consist of deferred revenue resulting from service contracts in our Frozen Beverages segment where our
Our customers are billed for service contracts in advance of performance. Contract liabilities also consist of deferred revenue in our Food Service segment resulting from initial franchise fees paid by franchisees, as well as renewalperformance and transfer fees paid by franchisees and license fees paid by licensees which are generally recognized on a straight-line basis over the term of the underlying agreement. Therefore,therefore we have contract liabilitiesliability on our balance sheet as follows:
(in thousands) | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
June 25, | June 26, | June 25, | June 26, | |||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Beginning Balance | $ | 1,092 | $ | 1,090 | $ | 1,097 | $ | 1,327 | ||||||||
Additions to contract liability | 2,270 | 1,237 | 4,843 | 4,182 | ||||||||||||
Amounts recognized as revenue | (1,276 | ) | (1,283 | ) | (3,854 | ) | (4,465 | ) | ||||||||
Ending Balance | $ | 2,086 | $ | 1,044 | $ | 2,086 | $ | 1,044 |
Three months ended | ||||||||
December 24, | December 25, | |||||||
2022 | 2021 | |||||||
(in thousands) | ||||||||
Beginning Balance | $ | 4,926 | $ | 1,097 | ||||
Additions to contract liability | 1,390 | 1,199 | ||||||
Amounts recognized as revenue | (1,549 | ) | (1,266 | ) | ||||
Ending Balance | $ | 4,767 | $ | 1,030 |
Disaggregation of Revenue
See Note 11 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 $1,629,000$2.2 million on December 24, 2022 and $1,405,000 on June 25,September 24, 2022, and September 25, 2021, respectively.
Note 4 | Depreciation and Amortization Expense 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, franchise agreements, technology 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 5 | Earnings per Share 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 |
Three Months Ended June 25, 2022 | ||||||||||||
Income | Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
(in thousands, except per share amounts) | ||||||||||||
Basic EPS | ||||||||||||
Net earnings available to common stockholders | $ | 15,563 | 19,174 | $ | 0.81 | |||||||
Effect of dilutive securities | ||||||||||||
Options | 0 | 60 | 0 | |||||||||
Diluted EPS | ||||||||||||
Net earnings available to common stockholders plus assumed conversions | $ | 15,563 | 19,234 | $ | 0.81 |
Three months ended December 24, 2022 | ||||||||||||
Income | Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
(in thousands, except per share amounts) | ||||||||||||
Basic EPS | ||||||||||||
Net Earnings available to common stockholders | $ | 6,633 | 19,222 | $ | 0.35 | |||||||
Effect of Dilutive Securities | ||||||||||||
RSU’s and Options | - | 52 | (0.01 | ) | ||||||||
Diluted EPS | ||||||||||||
Net Earnings available to common stockholders plus assumed conversions | $ | 6,633 | 19,274 | $ | 0.34 |
394,077 anti-dilutive shares have been excluded in the computation of EPS for the three months ended December 24, 2022. |
382,431 anti-dilutive shares have been excluded in the computation of EPS for the three months ended June 25, 2022.
Three months ended December 25, 2021 | ||||||||||||
Income | Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
(in thousands, except per share amounts) | ||||||||||||
Basic EPS | ||||||||||||
Net Earnings available to common stockholders | $ | 11,091 | 19,085 | $ | 0.58 | |||||||
Effect of Dilutive Securities | ||||||||||||
RSU’s and Options | - | 68 | - | |||||||||
Diluted EPS | ||||||||||||
Net Earnings available to common stockholders plus assumed conversions | $ | 11,091 | 19,153 | $ | 0.58 |
Nine Months ended June 25, 2022 | ||||||||||||
Income | Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
(in thousands, except per share amounts) | ||||||||||||
Basic EPS | ||||||||||||
Net earnings available to common stockholders | $ | 29,925 | 19,131 | $ | 1.56 | |||||||
Effect of dilutive securities | ||||||||||||
Options | 0 | 67 | 0 | |||||||||
Diluted EPS | ||||||||||||
Net earnings available to common stockholders plus assumed conversions | $ | 29,925 | 19,198 | $ | 1.56 |
318,172 anti-dilutive shares have been excluded in the computation of EPS for the three months ended December 25, 2021. |
302,674 anti-dilutive shares have been excluded in the computation of EPS for the nine months ended June 25, 2022.
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 | |||||||||
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 | |||||||||
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.
Note 6 | Share-Based Compensation and Post-Retirement Benefits At |
Three months ended | ||||||||||||||||||||||||
December 24, | December 25, | |||||||||||||||||||||||
Three Months Ended | Nine Months Ended | 2022 | 2021 | |||||||||||||||||||||
June 25, | June 26, | June 25, | June 26, | (in thousands) | ||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||
Stock options | $ | 693 | $ | 523 | $ | 2,115 | $ | 1,538 | $ | 620 | $ | 814 | ||||||||||||
Stock purchase plan | 90 | 171 | 240 | 513 | 227 | 60 | ||||||||||||||||||
Restricted stock issued to employees | 152 | 23 | 376 | 70 | ||||||||||||||||||||
Performance stock issued to employees | 83 | 0 | 204 | 0 | ||||||||||||||||||||
Stock issued to an outside director | - | 11 | ||||||||||||||||||||||
Service share units issued to employees | 181 | 72 | ||||||||||||||||||||||
Performance share units issued to employees | 72 | 39 | ||||||||||||||||||||||
Total share-based compensation | $ | 1,018 | $ | 717 | $ | 2,935 | $ | 2,121 | $ | 1,100 | $ | 996 | ||||||||||||
The above compensation is net of tax benefits | $ | 116 | $ | 265 | $ | 549 | $ | 1,131 | $ | 139 | $ | 87 |
The fair value of each option grant is estimated on the date of grant using the Black-Scholes options-pricing model.
During the fiscal year 2022nine-month period, the Company granted 115,700 stock options. The weighted-average grant date fair value of these options was $23.36.
During the fiscal year 2021nine-month period, the Company granted 138,432 stock options. The weighted-average grant date fair value of these options was $31.20.
The Company issued 327 service share units (“RSU”)’s in the three-months ended June 25, 2022, and 9,200 RSU’s in the nine-months ended June 25, 2022. Each RSU entitles the awardee to one share of common stock upon vesting. The fair value of RSU’s was determined based upon the closing price of the Company’s common stock on the date of grant. NaN such RSU’s were issued in the three or nine-months ended June 26, 2021.
In November 2021, the Company also issued 8,868 performance share units (“PSU”)’s. Each PSU may result in the issuance of up to two shares of common stock upon vesting, dependent upon the level of achievement of the applicable Performance Goal. The fair value of the PSU’s was determined based upon the closing price of the Company’s common stock on the date of grant. Additionally, the Company applies a quarterly probability assessment in computing this non-cash compensation expense, and any change in estimate is reflected as a cumulative adjustment to expense in the quarter of the change. NaN such PSU’s were issued in the three-months ended June 25, 2022 or in the three or nine-months ended June 26, 2021.
Expected volatility is based on the historical volatility of the price of our common shares over the past 51 months for 5-year5-year options and 10 years for 10-year10-year options. We use historical information to estimate expected life and forfeitures within the valuation model. The expected term of awards represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Compensation cost is recognized using a straight-line method over the vesting or service period and is net of estimated forfeitures.
The Company did not grant any stock options during the three months ended December 24, 2022 or during the three months ended December 25, 2021.
During the three months ended December 24, 2022, the Company issued 9,900 service share units (“RSU”)’s. Each RSU entitles the awardee to one share of common stock upon vesting. During the three months ended December 25, 2021, the Company issued 8,873 service share units (“RSU”)’s. The fair value of the RSU’s was determined based upon the closing price of the Company’s common stock on the date of grant.
During the three months ended December 24, 2022, the Company also issued 18,641 performance share units (“PSU”)’s. Each PSU may result in the issuance of up to two shares of common stock upon vesting, dependent upon the level of achievement of the applicable Performance Goal. The fair value of the PSU’s was determined based upon the closing price of the Company’s common stock on the date of grant. Additionally, the Company applies a quarterly probability assessment in computing this non-cash compensation expense, and any change in estimate is reflected as a cumulative adjustment to expense in the quarter of the change. During the three months ended December 25, 2021, the Company issued 8,868 performance share units (“PSU”)’s.
Note 7 | Income Taxes |
We account for our income taxes under the liability method. Under the liability method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates that will be in effect when these differences reverse. Deferred tax expense is the result of changes in deferred tax assets and liabilities.
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$0.3 million on both June 25,December 24, 2022 and September 25, 2021, respectively,24, 2022, 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 25,December 24, 2022 and September 25, 2021, 24, 2022, the Company has $267,000$0.3 million of accrued interest and penalties.penalties, respectively.
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 was 26% for the ninethree months ended June 25,December 24, 2022 and 24% for the nine months ended June 26, 2021. was 26%. Our effective tax rate was 27% for the three months ended June 25, 2022 and 25% for the three months ended June 26, 2021.in last fiscal year’s quarter.
Note 8 |
|
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 2016-132016-13 did not have a material impact on the Company’s consolidated financial statements.Consolidated Financial Statements.
Note 9 |
|
In December 2021, the Company entered into an amended and restated loan agreement (the “Credit Agreement”) with our existing banks which provided for up to a $50 million revolving credit facility repayable in December 2026.
Interest accrues, at the Company’s election, at (i) the BSBY Rate (as defined in the Credit Agreement) plus an applicable margin, based upon the Consolidated Net Leverage Ratio, as defined in the Credit Agreement, or (ii) the Alternate Base Rate (a rate based on the higher of (a) the prime rate announced from time-to-time by the Administrative Agent, (b) the Federal Reserve System’s federal funds rate, plus 0.50% or (c) the Daily BSBY Rate, plus an applicable margin. The Alternate Base Rate is defined in the Credit Agreement.
The Credit Agreement requires the Company to comply with various affirmative and negative covenants, including without limitation (i) covenants to maintain a minimum specified interest coverage ratio and maximum specified net leverage ratio, and (ii) subject to certain exceptions, covenants that prevent or restrict the Company’s ability to pay dividends, engage in certain mergers or acquisitions, make certain investments or loans, incur future indebtedness, alter its capital structure or line of business, prepay subordinated indebtedness, engage in certain transactions with affiliates, or amend its organizational documents. As of June 25,December 24, 2022, the Company is in compliance with all financial covenants terms of the Credit Agreement.
On June 21, 2022, the Company entered into an amendment to the Credit Agreement, the “Amended Credit Agreement” which provided for an incremental increase of $175,000,000$175 million in available borrowings. The Amended Credit Agreement also includes an option to increase the size of the revolving credit facility by up to an amount not to exceed in the aggregate the greater of $225,000,000$225 million or, $50,000,000$50 million plus the Consolidated EBITDA of the Borrowers, subject to the satisfaction of certain terms and conditions.
As of June 25,December 24, 2022, $125,000,000$92.0 million was outstanding under the Amended Credit Agreement.Agreement with a weighted average interest rate of 4.84%. These borrowings have been classified as Long-Term Debt on the Company’s Balance Sheet. As of June 25,December 24, 2022, the amount available under the Amended Credit Agreement was $91,225,000$123.2 million, after giving effect to the outstanding letters of credit. As of September 25, 2021, there were 024, 2022, $55.0 million was outstanding balances under the Amended Credit Agreement. As of September 24, 2022, the amount available under the Amended Agreement was $160.2 million, after giving effect to the outstanding letters of credit.
|
|
June 25, | September 25, | |||||||
2022 | 2021 | |||||||
(unaudited) | ||||||||
(in thousands) | ||||||||
Finished goods | $ | 83,201 | $ | 49,756 | ||||
Raw materials | 39,856 | 29,529 | ||||||
Packaging materials | 15,832 | 11,168 | ||||||
Equipment parts and other | 35,059 | 32,707 | ||||||
Total inventories | $ | 173,948 | $ | 123,160 |
Note |
|
Inventories consist of the following:
December 24, | September 24 | |||||||
2022 | 2022 | |||||||
(unaudited) | ||||||||
(in thousands) | ||||||||
Finished goods | $ | 86,459 | $ | 86,464 | ||||
Raw materials | 43,883 | 41,505 | ||||||
Packaging materials | 17,033 | 16,637 | ||||||
Equipment parts and other | 35,267 | 35,867 | ||||||
Total Inventories | $ | 182,642 | $ | 180,473 |
Note 11 | Segment Information |
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 below which is available to our Chief Operating Decision Maker.
Our 3 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 segment are soft pretzels, frozen novelties, churros, handheld products and baked goods. Our customers in the food service segment include snack bars and food stands in chain, department and discount stores; malls and shopping centers; casual dining restaurants, fast food outlets; stadiums and sports arenas; leisure and theme parks; convenience stores; movie theatres; warehouse club stores; schools, colleges and other institutions. Within the food service industry, our products are purchased by the consumer primarily for consumption at the point-of-sale.point-of-sale or for take-away.
Retail Supermarkets
The primary products sold to the retail supermarket channel are soft pretzel products – including SUPERPRETZEL, frozen novelties including LUIGI’S Real Italian Ice, MINUTE MAID Juice Bars and Soft Frozen Lemonade, WHOLE FRUIT frozen fruit bars and sorbet, DOGSTERS, PHILLY SWIRL cups and sticks, ICEE Squeeze-Up Tubes and handheld products. Within the retail supermarket channel, our frozen and prepackaged products are purchased by the consumer for consumption at home.
Frozen Beverages
The Company markets frozen beverages primarily under the names ICEE, SLUSH PUPPIE and PARROT ICE which are sold primarily in the United States, Mexico and Canada. We also provide repair and maintenance service to customers for customers’ owned equipment.
The Chief Operating Decision Maker for Food Service, Retail Supermarkets and Frozen Beverages reviews monthly 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 Maker and management when determining each segment’s, and the Company’s, financial condition and operating performance. In addition, the Chief Operating Decision Maker reviews and evaluates depreciation, capital spending and assets of each segment on a quarterly basis to monitor cash flow and asset needs of each segment. Information regarding the operations in these three reportable segments is as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
June 25, | June 26, | June 25, | June 26, | |||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Sales to external customers: | ||||||||||||||||
Food Service | ||||||||||||||||
Soft pretzels | $ | 55,946 | $ | 50,895 | $ | 149,628 | $ | 120,356 | ||||||||
Frozen novelties | 17,155 | 13,927 | 32,917 | 30,812 | ||||||||||||
Churros | 25,614 | 20,096 | 62,550 | 46,358 | ||||||||||||
Handhelds | 25,740 | 18,971 | 64,741 | 56,574 | ||||||||||||
Bakery | 95,495 | 85,706 | 287,293 | 257,580 | ||||||||||||
Other | 7,892 | 6,884 | 18,785 | 14,546 | ||||||||||||
Total Food Service | $ | 227,842 | $ | 196,479 | $ | 615,914 | $ | 526,226 | ||||||||
Retail Supermarket | ||||||||||||||||
Soft pretzels | $ | 11,696 | $ | 11,193 | $ | 43,642 | $ | 40,871 | ||||||||
Frozen novelties | 41,865 | 36,898 | 78,586 | 71,600 | ||||||||||||
Biscuits | 6,066 | 4,562 | 20,024 | 18,717 | ||||||||||||
Handhelds | 1,589 | 1,191 | 3,934 | 6,215 | ||||||||||||
Coupon redemption | (605 | ) | (513 | ) | (2,227 | ) | (2,196 | ) | ||||||||
Other | 397 | 526 | 501 | 1,652 | ||||||||||||
Total Retail Supermarket | $ | 61,008 | $ | 53,857 | $ | 144,460 | $ | 136,859 | ||||||||
Frozen Beverages | ||||||||||||||||
Beverages | $ | 57,791 | $ | 42,279 | $ | 126,919 | $ | 76,663 | ||||||||
Repair and | ||||||||||||||||
maintenance service | 22,892 | 22,789 | 65,903 | 59,903 | ||||||||||||
Machines revenue | 9,868 | 8,404 | 25,257 | 20,556 | ||||||||||||
Other | 826 | 536 | 1,777 | 1,312 | ||||||||||||
Total Frozen Beverages | $ | 91,377 | $ | 74,008 | $ | 219,856 | $ | 158,434 | ||||||||
Consolidated sales | $ | 380,227 | $ | 324,344 | $ | 980,230 | $ | 821,519 | ||||||||
Depreciation and amortization: | ||||||||||||||||
Food Service | $ | 7,097 | $ | 6,817 | $ | 20,436 | $ | 20,334 | ||||||||
Retail Supermarket | 405 | 378 | 1,157 | 1,147 | ||||||||||||
Frozen Beverages | 5,514 | 5,469 | 16,474 | 16,893 | ||||||||||||
Total depreciation and amortization | $ | 13,016 | $ | 12,664 | $ | 38,067 | $ | 38,374 | ||||||||
Operating income: | ||||||||||||||||
Food Service | $ | 2,640 | $ | 17,644 | $ | 12,177 | $ | 29,879 | ||||||||
Retail Supermarket | 2,341 | 9,080 | 8,416 | 20,167 | ||||||||||||
Frozen Beverages | 16,279 | 11,420 | 19,600 | (4,094 | ) | |||||||||||
Total operating income | $ | 21,260 | $ | 38,144 | $ | 40,193 | $ | 45,952 | ||||||||
Capital expenditures: | ||||||||||||||||
Food Service | $ | 21,673 | $ | 10,383 | $ | 45,757 | $ | 25,915 | ||||||||
Retail Supermarket | 2,815 | 93 | 6,438 | 194 | ||||||||||||
Frozen Beverages | 4,437 | 5,151 | 12,036 | 8,347 | ||||||||||||
Total capital expenditures | $ | 28,925 | $ | 15,627 | $ | 64,231 | $ | 34,456 | ||||||||
Assets: | ||||||||||||||||
Food Service | $ | 957,719 | $ | 779,730 | $ | 957,719 | $ | 779,730 | ||||||||
Retail Supermarket | 29,147 | 33,405 | 29,147 | 33,405 | ||||||||||||
Frozen Beverages | 304,376 | 288,411 | 304,376 | 288,411 | ||||||||||||
Total assets | $ | 1,291,242 | $ | 1,101,546 | $ | 1,291,242 | $ | 1,101,546 |
Three months ended | ||||||||
December 24, | December 25, | |||||||
2022 | 2021 | |||||||
(unaudited) | ||||||||
| (in thousands) | |||||||
Sales to External Customers: | ||||||||
Food Service | ||||||||
Soft pretzels | $ | 52,223 | $ | 50,421 | ||||
Frozen novelties | 21,765 | 8,457 | ||||||
Churros | 25,757 | 19,489 | ||||||
Handhelds | 23,572 | 18,495 | ||||||
Bakery | 108,948 | 107,831 | ||||||
Other | 6,032 | 7,039 | ||||||
Total Food Service | $ | 238,297 | $ | 211,732 | ||||
Retail Supermarket | ||||||||
Soft pretzels | $ | 14,485 | $ | 16,194 | ||||
Frozen novelties | 17,969 | 17,802 | ||||||
Biscuits | 7,913 | 8,271 | ||||||
Handhelds | 2,892 | 1,276 | ||||||
Coupon redemption | (176 | ) | (896 | ) | ||||
Other | (10 | ) | 48 | |||||
Total Retail Supermarket | $ | 43,073 | $ | 42,695 | ||||
Frozen Beverages | ||||||||
Beverages | $ | 38,659 | $ | 33,763 | ||||
Repair and maintenance service | 23,827 | 22,011 | ||||||
Machines revenue | 7,011 | 7,847 | ||||||
Other | 476 | 442 | ||||||
Total Frozen Beverages | $ | 69,973 | $ | 64,063 | ||||
Consolidated Sales | $ | 351,343 | $ | 318,490 | ||||
Depreciation and Amortization: | ||||||||
Food Service | $ | 9,458 | $ | 6,669 | ||||
Retail Supermarket | 391 | 366 | ||||||
Frozen Beverages | 5,332 | 5,476 | ||||||
Total Depreciation and Amortization | $ | 15,181 | $ | 12,511 | ||||
Operating Income : | ||||||||
Food Service | $ | 6,387 | $ | 9,001 | ||||
Retail Supermarket | 1,111 | 4,984 | ||||||
Frozen Beverages | 1,830 | 860 | ||||||
Total Operating Income | $ | 9,328 | $ | 14,845 | ||||
Capital Expenditures: | ||||||||
Food Service | $ | 24,862 | $ | 10,233 | ||||
Retail Supermarket | 1,374 | 2,529 | ||||||
Frozen Beverages | 4,674 | 3,338 | ||||||
Total Capital Expenditures | $ | 30,910 | $ | 16,100 | ||||
Assets: | ||||||||
Food Service | $ | 907,736 | $ | 794,819 | ||||
Retail Supermarket | 16,941 | 29,802 | ||||||
Frozen Beverages | 302,871 | 287,285 | ||||||
Total Assets | $ | 1,227,548 | $ | 1,111,906 |
Note 12 | Goodwill and Intangible Assets |
Our 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 Beverages segments as of June 25,December 24, 2022 and September 25, 2021 24, 2022 are as follows:
June 25, 2022 |
September 25, 2021 | December 24, 2022 | September 24, 2022 | |||||||||||||||||||||||||||||
Gross | Gross | Gross | Gross | |||||||||||||||||||||||||||||
Carrying | Accumulated | Carrying | Accumulated | Carrying | Accumulated | Carrying | Accumulated | |||||||||||||||||||||||||
Amount | Amortization | Amount | Amortization | Amount | Amortization | Amount | Amortization | |||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||
FOOD SERVICE | ||||||||||||||||||||||||||||||||
Indefinite lived intangible assets | ||||||||||||||||||||||||||||||||
Trade names | $ | 86,496 | $ | 0 | $ | 10,408 | $ | 812 | $ | 85,872 | $ | - | $ | 85,872 | $ | - | ||||||||||||||||
Amortized intangible assets | ||||||||||||||||||||||||||||||||
Non compete agreements | 670 | 670 | 670 | 670 | ||||||||||||||||||||||||||||
Non-compete agreements | - | - | 670 | 670 | ||||||||||||||||||||||||||||
Franchise agreements | 8,500 | 0 | 0 | 0 | 8,500 | 425 | 8,500 | 212 | ||||||||||||||||||||||||
Customer relationships | 25,100 | 7,163 | 13,000 | 6,188 | 22,900 | 8,418 | 22,900 | 7,790 | ||||||||||||||||||||||||
Technology | 22,900 | 0 | 0 | 0 | 23,110 | 1,162 | 23,110 | 576 | ||||||||||||||||||||||||
License and rights | 1,690 | 1,460 | 1,690 | 1,396 | 1,690 | 1,502 | 1,690 | 1,481 | ||||||||||||||||||||||||
TOTAL FOOD SERVICE | $ | 145,356 | $ | 9,293 | $ | 25,768 | $ | 9,066 | $ | 142,072 | $ | 11,507 | $ | 142,742 | $ | 10,729 | ||||||||||||||||
RETAIL SUPERMARKETS | ||||||||||||||||||||||||||||||||
Indefinite lived intangible assets | ||||||||||||||||||||||||||||||||
Trade names | $ | 12,316 | $ | 0 | $ | 12,777 | $ | 461 | $ | 11,938 | $ | - | $ | 11,938 | $ | - | ||||||||||||||||
Amortized intangible Assets | ||||||||||||||||||||||||||||||||
Amortized Intangible Assets | ||||||||||||||||||||||||||||||||
Trade names | 649 | 649 | 649 | 649 | - | - | 649 | 649 | ||||||||||||||||||||||||
Customer relationships | 7,907 | 6,500 | 7,907 | 5,931 | 7,688 | 6,678 | 7,907 | 6,693 | ||||||||||||||||||||||||
TOTAL RETAIL SUPERMARKETS | $ | 20,872 | $ | 7,149 | $ | 21,333 | $ | 7,041 | $ | 19,626 | $ | 6,678 | $ | 20,494 | $ | 7,342 | ||||||||||||||||
FROZEN BEVERAGES | ||||||||||||||||||||||||||||||||
Indefinite lived intangible assets | ||||||||||||||||||||||||||||||||
Trade names | $ | 9,315 | $ | - | $ | 9,315 | $ | - | $ | 9,315 | $ | - | $ | 9,315 | $ | - | ||||||||||||||||
Distribution rights | 36,100 | - | 36,100 | - | 36,100 | - | 36,100 | - | ||||||||||||||||||||||||
Amortized intangible assets | ||||||||||||||||||||||||||||||||
Customer relationships | 1,439 | 509 | 1,439 | 400 | 1,439 | 581 | 1,439 | 545 | ||||||||||||||||||||||||
Licenses and rights | 1,400 | 1,124 | 1,400 | 1,072 | 1,400 | 1,159 | 1,400 | 1,142 | ||||||||||||||||||||||||
TOTAL FROZEN BEVERAGES | $ | 48,254 | $ | 1,633 | $ | 48,254 | $ | 1,472 | $ | 48,254 | $ | 1,740 | $ | 48,254 | $ | 1,687 | ||||||||||||||||
CONSOLIDATED | $ | 214,482 | $ | 18,075 | $ | 95,355 | $ | 17,579 | $ | 209,952 | $ | 19,925 | $ | 211,490 | $ | 19,758 |
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 JuneDecember 24, 2022 and December 25, 2022 2021 was $1.7 million and June 26, 2021 was $584,000 and $639,000,$0.6 million, respectively. Aggregate amortization expense of intangible assets for the nine months ended June 25, 2022 and June 26, 2021 was $1,766,000 and $2,096,000, respectively
Estimated amortization expense for the next five fiscal years is approximately $3,500,000$4.9 million in 2022, $6,700,0002023 (excluding the three months ended December 24, 2022), $6.2 million in 2023, $6,400,0002024, $5.6 million in 2024, $5,800,0002025 and 2026, and $4.6 million in 2025, and $5,800,000 in 2026.2027.
The weighted amortization period of the intangible assets, in total, is 10.4 years. The weighted amortization period by intangible asset class is 10 years for Technology, 10 years for Customer relationships, 20 years for Licenses & rights, and 10 years for Franchise agreements.
Goodwill
The carrying amounts of goodwill for the Food Service, Retail Supermarket and Frozen Beverages segments are as follows:
Food | Retail | Frozen | ||||||||||||||
Service | Supermarket | Beverages | Total | |||||||||||||
(in thousands) | ||||||||||||||||
Balance at June 25, 2022 | $ | 127,823 | $ | 4,146 | $ | 56,498 | $ | 188,467 | ||||||||
Balance at September 25, 2021 | $ | 61,189 | $ | 4,146 | $ | 56,498 | $ | 121,833 |
Food | Retail | Frozen | ||||||||||||||
Service | Supermarket | Beverages | Total | |||||||||||||
(in thousands) | ||||||||||||||||
December 24, 2022 | $ | 123,776 | $ | 4,146 | $ | 56,498 | $ | 184,420 | ||||||||
September 24, 2022 | $ | 123,776 | $ | 4,146 | $ | 56,498 | $ | 184,420 |
Note 13 |
|
We have classified our investment securities as marketable securities held to maturity and available for sale. The FASB defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the FASB has established three levels of inputs that may be used to measure fair value: |
|
Level 1 Observable input such as quoted prices in active markets for identical assets or liabilities; |
|
Level 2 Observable inputs, other than Level 1 inputs in active markets, that are observable either directly or indirectly; and |
|
Level 3 Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.
Marketable securities held to maturity and available for sale consist primarily of investments in mutual funds, preferred stock and corporate bonds. The fair values of mutual funds are based on quoted market prices in active markets and are classified within Level 1 of the fair value hierarchy. The fair values of preferred stock, and corporate bonds and certificates of deposit are based on quoted prices for identical or similar instruments in markets that are not active. As a result, preferred stock, and corporate bonds and certificates of deposit are classified within Level 2 of the fair value hierarchy.
The amortized cost, unrealized gains and losses, and fair market values of our investment securities held to maturity at June 25,December 24, 2022 are summarized as follows:
Gross | Gross | Fair | Gross | Gross | Fair | |||||||||||||||||||||||||||
Amortized | Unrealized | Unrealized | Market | Amortized | Unrealized | Unrealized | Market | |||||||||||||||||||||||||
Cost | Gains | Losses | Value | Cost | Gains | Losses | Value | |||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||
Corporate bonds | $ | 4,520 | $ | 0 | $ | 52 | $ | 4,468 | ||||||||||||||||||||||||
Corporate Bonds | 2,008 | - | 10 | 1,998 | ||||||||||||||||||||||||||||
Total marketable securities held to maturity | $ | 4,520 | $ | 0 | $ | 52 | $ | 4,468 | $ | 2,008 | $ | - | $ | 10 | $ | 1,998 |
The amortized cost, unrealized gains and losses, and fair market values of our investment securities available for sale at June 25,December 24, 2022 are summarized as follows:
Gross | Gross | Fair | ||||||||||||||
Amortized | Unrealized | Unrealized | Market | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(in thousands) | ||||||||||||||||
Mutual funds | $ | 3,588 | $ | 0 | $ | 742 | $ | 2,846 | ||||||||
Preferred stock | 2,816 | 15 | 69 | 2,762 | ||||||||||||
Total marketable securities available for sale | $ | 6,404 | $ | 15 | $ | 811 | $ | 5,608 |
Gross | Gross | Fair | ||||||||||||||
Amortized | Unrealized | Unrealized | Market | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(in thousands) | ||||||||||||||||
Mutual Funds | $ | 3,588 | $ | - | $ | 774 | $ | 2,814 | ||||||||
Preferred Stock | 1,519 | 38 | - | 1,557 | ||||||||||||
Total marketable securities available for sale | $ | 5,107 | $ | 38 | $ | 774 | $ | 4,371 |
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 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 2022 through 2023,with $4.5all remaining $2 million maturing within the next 12 months.our fiscal year 2023. 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 25, 2021 24, 2022 are summarized as follows:
Gross | Gross | Fair | Gross | Gross | Fair | |||||||||||||||||||||||||||
Amortized | Unrealized | Unrealized | Market | Amortized | Unrealized | Unrealized | Market | |||||||||||||||||||||||||
Cost | Gains | Losses | Value | Cost | Gains | Losses | Value | |||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||
Corporate bonds | 12,027 | 123 | 18 | 12,132 | ||||||||||||||||||||||||||||
Corporate Bonds | 4,011 | - | 21 | 3,990 | ||||||||||||||||||||||||||||
Total marketable securities held to maturity | $ | 12,027 | $ | 123 | $ | 18 | $ | 12,132 | $ | 4,011 | $ | - | $ | 21 | $ | 3,990 |
The amortized cost, unrealized gains and losses, and fair market values of our investment securities available for sale at September 25, 2021 24, 2022 are summarized as follows:
Gross | Gross | Fair | ||||||||||||||
Amortized | Unrealized | Unrealized | Market | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(in thousands) | ||||||||||||||||
Mutual funds | $ | 3,588 | $ | 0 | $ | 536 | $ | 3,052 | ||||||||
Preferred stock | 6,892 | 175 | 35 | 7,032 | ||||||||||||
Total marketable securities available for sale | $ | 10,480 | $ | 175 | $ | 571 | $ | 10,084 |
Gross | Gross | Fair | ||||||||||||||
Amortized | Unrealized | Unrealized | Market | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(in thousands) | ||||||||||||||||
Mutual Funds | $ | 3,588 | $ | - | $ | 742 | $ | 2,846 | ||||||||
Preferred Stock | 2,816 | 46 | - | 2,862 | ||||||||||||
Total marketable securities available for sale | $ | 6,404 | $ | 46 | $ | 742 | $ | 5,708 |
The amortized cost and fair value of the Company’s held to maturity securities by contractual maturity at June 25,December 24, 2022 and September 25, 2021 24, 2022 are summarized as follows:
June 25, 2022 | September 25, 2021 | December 24, 2022 | September 24, 2022 | |||||||||||||||||||||||||||||
Fair | Fair | Fair | Fair | |||||||||||||||||||||||||||||
Amortized | Market | Amortized | Market | Amortized | Market | Amortized | Market | |||||||||||||||||||||||||
Cost | Value | Cost | Value | Cost | Value | Cost | Value | |||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||
Due in one year or less | $ | 4,520 | $ | 4,468 | $ | 7,980 | $ | 8,080 | $ | 2,008 | $ | 1,998 | $ | 4,011 | $ | 3,990 | ||||||||||||||||
Due after one year through five years | - | - | 4,047 | 4,052 | - | - | - | - | ||||||||||||||||||||||||
Due after five years through ten years | - | - | - | - | ||||||||||||||||||||||||||||
Total held to maturity securities | $ | 4,520 | $ | 4,468 | $ | 12,027 | $ | 12,132 | $ | 2,008 | $ | 1,998 | $ | 4,011 | $ | 3,990 | ||||||||||||||||
Less current portion | 4,520 | 4,468 | 7,980 | 8,080 | 2,008 | 1,998 | 4,011 | 3,990 | ||||||||||||||||||||||||
Long term held to maturity securities | $ | - | $ | - | $ | 4,047 | $ | 4,052 | $ | - | $ | - | $ | - | $ | - |
Proceeds from the redemption and sale of marketable securities were $0 and $11,526,000$3.3 million in the three and nine months ended June 25,December 24, 2022, and were $12,854,000 and $54,191,000$7.2 million in the three and nine months ended June 26,December 25, 2021, respectively. Losses of $343,000$37,000 and $412,000$44,000 were recorded in the three and nine months ended JuneDecember 24, 2022 and December 25, 2022, 2021, respectively, which included unrealized losses on marketable securities of $39,000 and gains of $21,000 and $139,000 were recorded$5,000 in the three and nine months ended June 26, 2021. Included in the gainsDecember 24, 2022 and losses were unrealized losses of $401,000 and unrealized gains of $786,000 in the nine months ended JuneDecember 25, 2022 and June 26, 2021, respectively. An unrealized loss of $343,000 and an unrealized gain of $137,000 were recorded in the three months ended June 25, 2022, and June 26, 2021, respectively. We use the specific identification method to determine the cost of securities sold.
Total marketable securities held to maturity as of June 25,December 24, 2022 with credit ratings of BBB/BB/B had an amortized cost basis totaling $4,520,000.$2.0 million. This rating information was obtained June 30,on December 31, 2022.
Note 14 |
|
Three Months Ended | Nine Months Ended | |||||||
June 25, 2022 | June 25, 2022 | |||||||
Foreign Currency | Foreign Currency | |||||||
Translation | Translation | |||||||
Adjustments | Adjustments | |||||||
(unaudited) | (unaudited) | |||||||
(in thousands) | (in thousands) | |||||||
Beginning balance | $ | (13,281 | ) | $ | (13,383 | ) | ||
Other comprehensive (loss) income | (93 | ) | 9 | |||||
Ending balance | $ | (13,374 | ) | $ | (13,374 | ) |
Changes to the components of accumulated other comprehensive loss are as follows:
Three Months Ended | Nine Months Ended | |||||||
June 26, 2021 | June 26, 2021 | |||||||
Foreign Currency | Foreign Currency | |||||||
Translation | Translation | |||||||
Adjustments | Adjustments | |||||||
(unaudited) | (unaudited) | |||||||
(in thousands) | (in thousands) | |||||||
Beginning balance | $ | (13,839 | ) | $ | (15,587 | ) | ||
Other comprehensive income | 657 | 2,405 | ||||||
Ending balance | $ | (13,182 | ) | $ | (13,182 | ) |
Three months ended | ||||
December 24, 2022 | ||||
Foreign Currency | ||||
Translation Adjustments | ||||
(unaudited) | ||||
(in thousands) | ||||
Beginning Balance | $ | (13,713 | ) | |
Other comprehensive income (loss) | 871 | |||
Ending Balance | $ | (12,842 | ) |
Three months ended | ||||
December 25, 2021 | ||||
Foreign Currency | ||||
Translation Adjustments | ||||
(unaudited) | ||||
(in thousands) | ||||
Beginning Balance | $ | (13,383 | ) | |
Other comprehensive income (loss) | (444 | ) | ||
Ending Balance | $ | (13,827 | ) |
Note 15 | 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 1312 years.
We have finance leases with initial noncancelable lease terms in excess of one year covering the rental of various equipment. These leases are generally for manufacturing and non-manufacturing equipment used in our business. The remaining lease terms for these finance leases range from 1 year to 5 years.
Significant Assumptions and Judgments
Contract Contains a Lease
In evaluating our contracts to determine whether a contract is or contains a lease, we considered the following:
• | Whether explicitly or implicitly identified assets have been deployed in the contract; and |
• Whether 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 25,December 24, 2022, the weighted-average discount rate of our operating and finance leases was 3.4% and 3.2%, respectively. As of September 24, 2022, the weighted-average discount rate of our operating and finance leases was 3.3% and 3.2%, respectively. As of June 26, 2021, the weighted-average discount rate of our operating and finance leases was 3.2% and 3.2%, respectively.
Practical Expedients and Accounting Policy Elections
We elected the package of practical expedients that permits us not to reassess our prior conclusions about lease identification, lease classification and initial direct costs and made an accounting policy election to exclude short-term leases with an initial term of 12 months or less from our Consolidated Balance Sheets.
Amounts Recognized in the Financial Statements
The components of lease expense were as follows:
Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | Three months Ended | Three months Ended | |||||||||||||||||||
June 25, 2022 | June 26, 2021 | June 25, 2022 | June 26, 2021 | December 24, 2022 | December 25, 2021 | |||||||||||||||||||
(in thousands) | (in thousands) | (in thousands) | (in thousands) | |||||||||||||||||||||
Operating lease cost in cost of goods sold and operating expenses | $ | 3,630 | $ | 3,846 | $ | 11,550 | $ | 11,747 | ||||||||||||||||
Operating lease cost in Cost of goods sold and Operating Expenses | $ | 3,972 | $ | 1,458 | ||||||||||||||||||||
Finance lease cost: | ||||||||||||||||||||||||
Amortization of assets in cost of goods sold and operating expenses | 19 | 62 | 141 | 216 | ||||||||||||||||||||
Amortization of assets in Cost of goods sold and Operating Expenses | $ | 34 | $ | 72 | ||||||||||||||||||||
Interest on lease liabilities in Interest expense & other | 1 | 5 | 8 | 30 | 2 | 5 | ||||||||||||||||||
Total finance lease cost | $ | 20 | $ | 67 | $ | 149 | $ | 246 | $ | 36 | $ | 77 | ||||||||||||
Short-term lease cost in cost of goods sold and operating expenses | 0 | 0 | 0 | 0 | ||||||||||||||||||||
Short-term lease cost in Cost of goods sold and Operating Expenses | - | - | ||||||||||||||||||||||
Total net lease cost | $ | 3,650 | $ | 3,913 | $ | 11,699 | $ | 11,993 | $ | 4,008 | $ | 1,535 |
Supplemental balance sheet information related to leases is as follows:
June 25, 2022 | September 25, 2021 | |||||||||||||||
(in thousands) | (in thousands) | December 24, 2022 | September 24, 2022 | |||||||||||||
Operating Leases | ||||||||||||||||
Operating lease right-of-use assets | $ | 54,990 | $ | 54,555 | $ | 50,063 | $ | 51,137 | ||||||||
Current operating lease liabilities | $ | 14,062 | $ | 13,395 | $ | 13,219 | $ | 13,524 | ||||||||
Noncurrent operating lease liabilities | 46,017 | 46,557 | 41,883 | 42,660 | ||||||||||||
Total operating lease liabilities | $ | 60,079 | $ | 59,952 | $ | 55,102 | $ | 56,184 | ||||||||
Finance Leases | ||||||||||||||||
Finance lease right-of-use assets in property, plant and equipment, net | $ | 441 | $ | 561 | ||||||||||||
Finance lease right-of-use assets in Property, plant and equipment, net | $ | 395 | $ | 328 | ||||||||||||
Current finance lease liabilities | $ | 189 | $ | 182 | $ | 128 | $ | 124 | ||||||||
Noncurrent finance lease liabilities | 318 | 392 | 303 | 254 | ||||||||||||
Total finance lease liabilities | $ | 507 | $ | 574 | $ | 431 | $ | 378 |
Supplemental cash flow information related to leases is as follows:
Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | |||||||||||||||||||||
June 25, 2022 | June 26, 2021 | June 25, 2022 | June 26, 2021 | Three months Ended | Three months Ended | |||||||||||||||||||
(in thousands) | (in thousands) | (in thousands) | (in thousands) | December 24, 2022 | December 25, 2021 | |||||||||||||||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||||||||||||
Operating cash flows from operating leases | $ | 4,181 | $ | 3,860 | $ | 12,189 | $ | 11,847 | $ | 3,918 | $ | 1,534 | ||||||||||||
Operating cash flows from finance leases | $ | 1 | $ | 64 | $ | 8 | $ | 237 | $ | 2 | $ | 5 | ||||||||||||
Financing cash flows from finance leases | $ | 39 | $ | 23 | $ | 150 | $ | 48 | $ | 39 | $ | 74 | ||||||||||||
Supplemental noncash information on lease liabilities arising from obtaining right-of-use assets | $ | 4,652 | $ | 1,317 | $ | 11,717 | $ | 2,671 | $ | 2,676 | $ | 1,143 | ||||||||||||
Supplemental noncash information on lease liabilities removed due to purchase of leased asset | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - |
As of December 24, 2022, the maturities of lease liabilities were as follows: |
Operating Leases | Finance Leases | |||||||
Nine months ending September 30, 2023 | $ | 13,095 | $ | 142 | ||||
2024 | 12,964 | 133 | ||||||
2025 | 9,488 | 73 | ||||||
2026 | 6,238 | 59 | ||||||
2027 | 5,256 | 52 | ||||||
Thereafter | 15,546 | - | ||||||
Total minimum payments | 62,587 | 397 | ||||||
Less amount representing interest | (7,485 | ) | (28 | ) | ||||
Present value of lease obligations | $ | 55,102 | $ | 431 |
As of December 24, 2022 the weighted-average remaining term of our operating and finance leases was 5.8 years and 3.3 years, respectively. As of September 24, 2022, the weighted average remaining term of our operating and finance leases was 5.8 years and 3.3 years, respectively. |
Note 16 | Related Parties |
We have related party expenses for distribution and shipping related costs with NFI Industries, Inc. Our director, Sidney R. Brown, is CEO and an owner of NFI Industries, Inc. In the three months ended December 24, 2022 and December 25, 2021, the Company paid NFI $14.3 million and $1.3 million, respectively. Of the amounts paid to NFI, the amount related to management services performed by NFI was $0.1 million in the three months ended December 24, 2022 and $0.1 million in the three months ended December 25, 2021. The remainder of the costs related to amounts that were passed through to the third-party distribution and shipping vendors that are being managed on the Company’s behalf by NFI. The agreements with NFI include terms that are consistent with those that we believe would have been negotiated at an arm’s length with an independent party. As of June 25,December 24, 2022 the maturitiesand September 24, 2022, our consolidated balance sheet included related party trade payables of lease liabilities were as follows:approximately $4.0 million and $2.9 million, respectively.
(in thousands) | ||||||||
Operating Leases | Finance Leases | |||||||
Three months ending September 24, 2022 | $ | 4,187 | $ | 64 | ||||
2023 | 14,973 | 181 | ||||||
2024 | 12,251 | 140 | ||||||
2025 | 8,753 | 65 | ||||||
2026 | 5,666 | 39 | ||||||
Thereafter | 20,515 | 33 | ||||||
Total minimum payments | $ | 66,345 | $ | 522 | ||||
Less amount representing interest | (6,266 | ) | (15 | ) | ||||
Present value of lease obligations | $ | 60,079 | $ | 507 |
|
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”“Securities Act”) and Section 21E of the Securities Exchange Act of 1934 “the Exchange(the “Exchange Act”., that involve substantial risks or uncertainties. These statements often can be identified by the use of terms such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” “projects,” “seek,” “intend,” “predict,” “approximate,” “intend” or “continue,” or other similar references to future periods or the negative thereof. Statements addressing our future operating performance and statements addressing events and developments that we expect or anticipate will occur are also considered as forward-looking statements. We intend that such forward-looking statements be subject to the safe harbor provisions of the Act and the Exchange Act.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, assumptions, 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 working capital, capital spending, debt service requirements and future growth and expansion for at least the next twelve months. See Note 13 to these financial statements for a discussion of our investment securities.RESULTS OF OPERATIONS – Three months ended December 24, 2022
The Company’s Boardfollowing discussion provides a review of Directors declared a regular quarterly cash dividend of $0.633 per share of its common stock payable on July 11, 2022, to shareholders of record as ofresults for the close of business on June 20, 2022.
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. We did not purchase any shares of our common stock in the ninethree months ended JuneDecember 24, 2022 as compared with the three months ended December 25, 2022, nor did we purchase any shares of our common stock in fiscal year 2021.
In
Summary of Results | Three months ended | |||||||||||
December 24, | December 25, | |||||||||||
2022 | 2021 | % Change | ||||||||||
(Unaudited) (in thousands) | ||||||||||||
Net Sales | $ | 351,343 | $ | 318,490 | 10.3 | % | ||||||
Cost of goods sold | 260,488 | 239,115 | 8.9 | % | ||||||||
Gross Profit | 90,855 | 79,375 | 14.5 | % | ||||||||
Operating expenses | ||||||||||||
Marketing | 23,699 | 20,907 | 13.4 | % | ||||||||
Distribution | 42,049 | 33,315 | 26.2 | % | ||||||||
Administrative | 16,391 | 10,369 | 58.1 | % | ||||||||
Other general expense (income) | (612 | ) | (61 | ) | 903.3 | % | ||||||
Total Operating Expenses | 81,527 | 64,530 | 26.3 | % | ||||||||
Operating Income | 9,328 | 14,845 | (37.2 | )% | ||||||||
Other income (expense) | ||||||||||||
Investment income | 685 | 271 | 152.8 | % | ||||||||
Interest (expense) | (1,049 | ) | (18 | ) | n.m. | |||||||
Earnings before income taxes | 8,964 | 15,098 | (40.6 | )% | ||||||||
Income tax expense | 2,331 | 4,007 | (41.8 | )% | ||||||||
NET EARNINGS | $ | 6,633 | $ | 11,091 | (40.2 | )% |
Comparisons as a Percentage of Net Sales | Three months ended | |||||||||||
December 24, | December 25, | |||||||||||
2022 | 2021 | Basis Pt Chg | ||||||||||
Gross profit | 25.9 | % | 24.9 | % | 100 | |||||||
Marketing | 6.7 | % | 6.6 | % | 10 | |||||||
Distribution | 12.0 | % | 10.5 | % | 150 | |||||||
Administrative | 4.7 | % | 3.3 | % | 140 | |||||||
Operating income | 2.7 | % | 4.7 | % | (200 | ) | ||||||
Earnings before income taxes | 2.6 | % | 4.7 | % | (210 | ) | ||||||
Net earnings | 1.9 | % | 3.5 | % | (160 | ) |
Net Sales
Net sales increased $32.9 million or 10.3% to $351.3 million for the three months ended June 25, 2022 and June 26, 2021, fluctuationsDecember 24, 2022. Net sales in the valuationperiod included $13.4 million of net sales from Dippin’ Dots. Organic sales growth was driven by growth across all three of the MexicanCompany’s business segments, led by our core products including pretzels, churros, frozen novelties and Canadian currenciesfrozen beverages.
Gross Profit
Gross Profit increased by $11.5 million, or 14.5%, to $90.9 million for the three months ended December 24, 2022. As a percentage of sales, gross profit increased from 24.9% to 25.9%. Key ingredients including flour, oils, eggs, meats, sugar and dairy continued to experience inflationary pressures compared with the resulting translationsame quarter last year, with average raw material costs up approximately 20%. Three pricing actions implemented in fiscal 2022, along with an improved mix, helped to offset the impact of the net assets of our Mexican and Canadian subsidiaries caused an increase of $93,000 and a decrease of $657,000 in accumulated other comprehensive loss, respectively. In the nine months ended June 25, 2022 and June 26, 2021, fluctuations in the valuation of the Mexican and Canadian currencies and the resulting translation of the net assets of our Mexican and Canadian subsidiaries caused a decrease of $9,000 and $2,405,000 in accumulated other comprehensive loss, respectively.
In December 2021, the Company entered into an amended and restated loan agreement (the “Credit Agreement”) with our existing banks which provided for up to a $50,000,000 revolving credit facility repayable in December 2026.
On June 21, 2022, the Company entered into an amendment to the Credit Agreement, the “Amended Credit Agreement” which provided for an incremental increase of $175,000,000 in available borrowings. The Amended Credit Agreement also includes an option to increase the size of the revolving credit facility by up to an amount not to exceed in the aggregate the greater of $225,000,000 or $50,000,000 plus the Consolidated EBITDA of the Borrowers, subject to the satisfaction of certain terms and conditions.
As of June 25, 2022, $125,000,000 was outstanding under the Amended Credit Agreement. These borrowings have been classified as Long-Term Debt on the Company’s Balance Sheet. As of June 25, 2022, the amount available under the Amended Credit Agreement was $91,225,000, after giving effect to the outstanding letters of credit. As of September 25, 2021, there were no outstanding balances under the Credit Agreement. As of June 25, 2022, the Company is in compliance with all financial covenants of the Credit Agreement.
Critical Accounting Policies, Judgments and Estimates
There have been no material changes to our critical accounting policies, judgments and estimates from the information provided in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies, Judgments and Estimates, in our Annual Report on Form 10-K for the year ended September 25, 2021, as filed with the SEC on November 23, 2021.inflationary pressures noted above.
RESULTS OF OPERATIONSOperating Expenses
Net salesOperating Expenses increased by 17%$17.0 million, or 26.3%, to $380,227,000 in the third quarter and by 19% to $980,230,000$81.5 million for the ninethree months ended June 25, 2022 compared to the three and nine months ended June 26, 2021, respectively.
FOOD SERVICE
Sales to food service customers increased by 16% in the third quarter to $227,842,000 and by 17% to $615,914,000 for the nine months, compared to respective prior year periods. Sales were up across most product lines as many of the venues and locations where our products are sold that were previously shut down or operating at reduced capacity in the first nine months of 2021 have partially or fully re-opened in the first nine months ofDecember 24, 2022. Theaters and outdoor venues, including stadiums and amusement parks, as well as schools, restaurants and strategic accounts continued to experience an increase in visitation that drove strong sales in our core products.
Soft pretzel sales to the food service market increased by 10% to $55,946,000 in the third quarter and by 24% to $149,628,000 in the nine months compared to respective prior year periods. Frozen novelties sales increased by 23% to $17,155,000 in the third quarter and increased by 7% to $32,917,000 in the nine months compared to respective prior year periods. Churro sales to food service customers increased by 27% to $25,614,000 in the third quarter and increased by 35% to $62,550,000 in the nine months compared to respective prior year periods. Sales of bakery products increased by 11% in the third quarter to $95,495,000 and increased 12% to $287,293,000 for the nine months compared to respective prior year periods. Sales of handhelds increased 36% in the third quarter to $25,740,000 and by 14% to $64,741,000 in the nine months compared to respective prior year periods.
Sales of new products in the first twelve months since their introduction were approximately $700,000 in the third quarter and $4,600,000 in the nine months, driven primarily by new bakery items, including a new empanada product with a major convenience customer. Price increases had a moderate impact on sales in the quarter, and the overall revenue growth included marginal volume increases as well.
Compared to prior year, operating income in our Food Service segment decreased by 85% to $2,640,000 in the third quarter and by 59% to $12,177,000 in the nine months reflecting the significant increase in ingredients, production and distribution costs year over year, as well as our ERP implementation which previously impacted our results in the fiscal second quarter.
RETAIL SUPERMARKETS
Compared to prior year, sales of products to retail supermarkets increased by 13% to $61,008,000 in the third quarter and increased by 6% to $144,460,000 in the nine months. Our SUPERPRETZEL brand has performed well helping to drive a 4% increase in sales of soft pretzels in the third quarter to $11,696,000 and a 7% increase in sales in the nine months to $43,642,000. Sales of frozen novelties increased by 13% to $41,865,000 in the third quarter and increased by 10% to $78,586,000 in the nine months compared to respective prior year periods, largely driven by the addition of new stock keeping units, and additional product placement with some of our key brands. Sales of biscuits increased by 33% to $6,066,000 in the third quarter and by 7% to $20,024,000 in the nine months compared to respective prior year periods. Handheld sales to retail supermarket customers increased by 33% to $1,589,000 in the third quarter but decreased by 37% to $3,934,000 in the nine months compared to respective prior year periods.
Sales of new products were approximately $400,000 for the third quarter and $900,000 in the nine months, primarily related to frozen novelty items. Price increases and volume increases both had a marginal impact on sales in the quarter.
Compared to prior year periods, operating income in our Retail Supermarkets segment decreased by 74% to $2,341,000 in the third quarter and by 58% to $8,416,000 in the nine months. The decreases in operating income were primarily attributable to higher cost of goods sold as well as higher shipping and distribution related costs, as well as our ERP implementation which previously impacted our results in the fiscal second quarter..
FROZEN BEVERAGES
Compared to prior year periods, frozen beverage and related product sales increased by 23% to $91,377,000 in the third quarter and by 39% to $219,856,000 in the nine months. Beverage related sales increased by 37% to $57,791,000 in the third quarter and by 66% to $126,919,000 in the nine months compared to respective prior year periods. Gallon sales were up 28% in the quarter and up 56% in the nine months compared to respective prior year periods. The increase in gallon sales reflects the strong demand across theaters, amusement parks, convenience and restaurants. In the amusement parks channel, we continue to see strong growth as both domestic and international visitation numbers continue to recover, and exceed, pre-COVID-19 levels. Theater sales continue on their upward trajectory as movie goers indulge in their favorite snacks and view highly anticipated movie releases. Service revenue remained relatively flat in the third quarter, but increased by 10% to $65,903,000 in the nine months, compared to respective prior year periods, led by an acceleration in maintenance calls and additional growth in one of our larger customers, earlier in the fiscal year. Machines revenue (primarily sales of frozen beverage machines) increased by 17% to $9,868,000 in the third quarter and by 23% to $25,257,000 in the nine months, compared to respective prior year periods, driven mainly by growth from large quick service restaurant (QSR) and convenience customers.
Our Frozen Beverage segment had operating income of $16,279,000 in the third quarter compared with $11,420,000 in the prior year third quarter. In the nine months, our Frozen Beverage segment had operating income of $19,600,000 compared with an operating loss of $4,094,000 in the prior year nine-month period. The comparative performance was primarily a result of higher beverage sales volume which drove leverage across the business.
CONSOLIDATED
Gross profit as a percentage of sales was 28.7% in the third quarter and 29.7% in the prior year quarter. Gross profit as a percentage of sales was 25.9% in the nine-month period this year and 25.2% last year. Inflation continued to build over the quarter and nine-month period which has significantly pressured margins. The impact was especially pronounced in key raw material purchases such as flour, eggs, dairy, chocolates and meats, as well as packaging and fuel. We have pricing and cost initiatives in place to offset these cost pressures, which included a price increase early in the third quarter.
Total operating expenses increased by 51% to $87,816,000 in the third quarter and by 32% to $213,606,000 in the nine months compared to respective prior year periods. As a percentage of net sales, operating expenses increased from 17.9%20.3% to 23.1%23.2%, primarily reflecting the ongoing inflationary pressures across distribution and administrative costs. As a percentage of sales, distribution expenses increased from 10.5% to 12.0%, reflecting inflationary pressures noted in fuel and outbound freight. As a percentage of sales, marketing expenses remained relatively flat, increasing slightly from 6.6% to 6.7%. As a percentage of sales, general and administrative expenses increased from 3.3% to 4.7% largely driven by the general and administrative expenses incurred by Dippin’ Dots in the third quarter and from 19.6% to 21.8% in the nine months.three months ended December 24, 2022.
Marketing expenses remained flat at 6.3% of net salesOther Income and Expense
Investment income increased $0.4 million to $0.7 million for the three months ended December 24, 2022. The increase was primary due to the improving interest rate environment. Interest expense increased by $1.0 million for the three months ended December 24, 2022 due to the Company’s outstanding borrowings on the Amended Credit Agreement.
Income Tax Expense
Income tax expense decreased by $1.7 million, or 41.8%, to $2.3 million for the three months ended December 24, 2022. This decrease was materially consistent with the overall 40.6% decrease in earnings before income taxes. The effective tax rate was 26.0% for the third quarter and decreased to 6.7% in the ninethree months ended December 24, 2022 as compared with 6.9% in prior year’s nine-month period. Distribution expenses increased to 12.7% of net sales in the third quarter from 8.4%26.5% in the prior year and to 11.2% in the nine months compared with 9.2% in prior year’s nine-month period, with the increases largely driven by higher truck driver wages and rising carrier, storage and fuel costs. Administrative expenses increased to 4.1% of net sales in the third quarter from 3.2% in prior year and to 3.9% in the nine months compared with 3.5% in prior year’s nine-month period, with the increase largely attributable to $3,088,000 of merger and acquisition costs which were incurred in the third quarter.period.
Compared to prior year, operating incomeNet Earnings
Net earnings decreased by 44%$4.5 million, or 40.2%, to $21,260,000 in$6.6 million for the third quarter and by 13%three months ended December 24, 2022, due to $40,193,000 in the nine months as a result of the aforementioned items.
Our investments generated before tax income of $106,000 in the third quarter, a $364,000 decrease over prior year. In the nine months, our investments generated before tax income of $537,000, a 78% decrease from the prior year period. The decrease in before tax investment income compared with prior year was due to decreases in the amount of investments as well as the impact of the rising interest rate environment on our investment holdings.
Compared to prior year, net earnings decreased by 46% to $15,563,000 in the third quarter and by 19% to $29,925,000 in the nine months. Our effective tax rate was 26% in the nine months compared with 24% in the prior year’s nine-month period, as prior year’s nine-month period effective tax rate was more favorably impacted by tax benefits related to share-based compensation. Our effective tax rate was 27% in the third quarter and was 25% in the prior year third quarter.
There are many factors which can impact our net earnings from year-to-yearyear to year and in the long run, among includingwhich 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.
Business Segment Discussion
We operate in three segments: Food Service, Retail Supermarket, and Frozen Beverages. The following table is a summary of sales and operating income (loss), which is how we measure segment profit.
Three months ended | ||||||||||||
December 24, | December 25, | |||||||||||
2022 | 2021 | % Change | ||||||||||
(in thousands) | ||||||||||||
Net Sales | ||||||||||||
Food Service | $ | 238,297 | $ | 211,732 | 12.5 | % | ||||||
Retail Supermarket | 43,073 | 42,695 | 0.9 | % | ||||||||
Frozen Beverages | 69,973 | 64,063 | 9.2 | % | ||||||||
Total Sales | $ | 351,343 | $ | 318,490 | 10.3 | % |
Three months ended | ||||||||||||
December 24, | December 25, | |||||||||||
2022 | 2021 | % Change | ||||||||||
(in thousands) | ||||||||||||
Operating Income | ||||||||||||
Food Service | $ | 6,387 | $ | 9,001 | (29.0 | )% | ||||||
Retail Supermarket | 1,111 | 4,984 | (77.7 | )% | ||||||||
Frozen Beverages | 1,830 | 860 | 112.8 | % | ||||||||
Total Operating Income | $ | 9,328 | $ | 14,845 | (37.2 | )% |
Food Service Segment Results
Three months ended | ||||||||||||
December 24, | December 25, | |||||||||||
2022 | 2021 | % Change | ||||||||||
(in thousands) | ||||||||||||
Food Service Sales | ||||||||||||
Soft pretzels | $ | 52,223 | $ | 50,421 | 3.6 | % | ||||||
Frozen novelties | 21,765 | 8,457 | 157.4 | % | ||||||||
Churros | 25,757 | 19,489 | 32.2 | % | ||||||||
Handhelds | 23,572 | 18,495 | 27.5 | % | ||||||||
Bakery | 108,948 | 107,831 | 1.0 | % | ||||||||
Other | 6,032 | 7,039 | (14.3 | )% | ||||||||
Total Food Service Sales | $ | 238,297 | $ | 211,732 | 12.5 | % | ||||||
| ||||||||||||
Food Service Operating Income | $ | 6,387 | $ | 9,001 | (29.0 | )% |
Sales to food service customers increased $26.6 million, or 12.5%, to $238.3 million for the three months ended December 24, 2022, which included approximately $13.4 million in sales from Dippin’ Dots. Soft pretzels sales to food service increased 4% to $52.2 million. Frozen novelties sales increased 157% to $21.8 million, largely driven by Dippin’ Dots sales. Churro sales increased 32% to $25.8 million led by customer expansion and growing menu penetration, highlighted by the introduction of our Hola! Churros brand, as we achieved some of our slotting objectives with major distributors and gains at large regional quick service and fast casual restaurants. Sales of bakery products increase by 1% to $108.9 million. Sales of handhelds increased 28% to $23.6 million led by the continued success of a product developed for one of our larger wholesale club customers.
Sales of new products in the first twelve months since their introduction were minimal in the quarter. Price increases benefited revenues in the quarter, and more than offset some volume declines seen in certain product categories.
Operating income in our Food Service segment decreased $2.6 million in the quarter to $6.4 million, which reflected the significant increase in input, production and distribution costs.
Retail Supermarket Segment Results
Three months ended | ||||||||||||
December 24, | December 25, | |||||||||||
2022 | 2021 | % Change | ||||||||||
(in thousands) | ||||||||||||
Retail Supermarket Sales | ||||||||||||
Soft pretzels | $ | 14,485 | $ | 16,194 | (10.6 | )% | ||||||
Frozen novelties | 17,969 | 17,802 | 0.9 | % | ||||||||
Biscuits | 7,913 | 8,271 | (4.3 | )% | ||||||||
Handhelds | 2,892 | 1,276 | 126.6 | % | ||||||||
Coupon redemption | (176 | ) | (896 | ) | (80.4 | )% | ||||||
Other | (10 | ) | 48 | (120.8 | )% | |||||||
Total Retail Supermarket Sales | $ | 43,073 | $ | 42,695 | 0.9 | % | ||||||
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Retail Supermarket Operating Income | $ | 1,111 | $ | 4,984 | (77.7 | )% |
Sales of products to retail customers increased $0.4 million, or 1%, to $43.1 million for the three months ended December 24, 2022. Soft pretzel sales declined 11% to $14.5 million, frozen novelties sales increase 1% to $18.0 million, biscuit sales declined 4% to $7.9 million, and handheld sales increased 127% to $2.9 million. Sales of new products in retail supermarkets were minimal in the quarter. Price increases benefited revenues in the quarter and helped to offset volume declines seen in certain product categories.
Operating income in our Retail Supermarkets segment decreased $3.9 million in the quarter to $1.1 million driven by higher cost of goods sold and distribution related expenses.
Frozen Beverages Segment Results
Three months ended | ||||||||||||
December 24, | December 25, | |||||||||||
2022 | 2021 | % Change | ||||||||||
(in thousands) | ||||||||||||
Frozen Beverages Sales | ||||||||||||
Beverages | $ | 38,659 | $ | 33,763 | 14.5 | % | ||||||
Repair and maintenance service | 23,827 | 22,011 | 8.3 | % | ||||||||
Machines revenue | 7,011 | 7,847 | (10.7 | )% | ||||||||
Other | 476 | 442 | 7.7 | % | ||||||||
Total Frozen Beverages Sales | $ | 69,973 | $ | 64,063 | 9.2 | % | ||||||
Frozen Beverages Operating Income | $ | 1,830 | $ | 860 | 112.8 | % |
Frozen beverage and related product sales increased $5.9 million, or 9%, in the three months ended December 24, 2022. Beverage related sales increased 15% to $38.7 million. Gallon sales were up 2% for the three months led by continued improving trends in travel, sporting events, concerts and amusement parks. Sales remained strong even as volume at theaters declined in the quarter due to lower performing releases and weather-related impacts during the holiday season. Service revenue increased 8% to $23.8 million reflecting healthy maintenance call volumes. Machine revenue (primarily sales of frozen beverage machines) decreased 11% to $7.0 million due to the timing of customer installations between years.
Operating income in our Frozen Beverage segment increased $1.0 million in the quarter to $1.8 million as strong sales drove leverage across the business.
Liquidity and Capital Resources
Although there are many factors that could impact our operating cash flow, most notably net earnings, we believe that our future operating cash flow, along with our borrowing capacity, our current cash and cash equivalent balances and our investment securities is sufficient to satisfy our cash requirements over the next twelve months and beyond, as well as to fund future growth and expansion.
Three months ended | ||||||||
December 24, | December 25, | |||||||
2022 | 2021 | |||||||
(in thousands) | ||||||||
Cash flows from operating activities | ||||||||
Net earnings | $ | 6,633 | $ | 11,091 | ||||
Non-cash items in net income: | ||||||||
Depreciation of fixed assets | 13,476 | 11,923 | ||||||
Amortization of intangibles and deferred costs | 1,705 | 588 | ||||||
Gains from disposals of property & equipment | (711 | ) | (27 | ) | ||||
Share-based compensation | 1,239 | 1,083 | ||||||
Deferred income taxes | (526 | ) | (529 | ) | ||||
Loss on marketable securities | 37 | 44 | ||||||
Other | (18 | ) | (4 | ) | ||||
Changes in assets and liabilities, net of effects from purchase of companies | (425 | ) | (18,715 | ) | ||||
Net cash provided by operating activities | $ | 21,410 | $ | 5,454 |
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● | The increase in amortization of intangibles and deferred costs over prior year period was related to intangible assets acquired in the fiscal 2022 Dippin’ Dots acquisition. | |
● | The $0.7 million gain from disposals of property & equipment in the three months ended December 24, 2022 primarily related to the sale of a building. |
● | Cash flows associated with changes in assets and liabilities, net of effects from purchase of companies were a net slight outflow in the three months ended December 24, 2022, with a decrease in accounts receivable largely offset by a decrease in accounts payable and accrued liabilities. In the prior year period, the net $18.7 million cash outflow was largely attributable to increases in inventory and decreases in accounts payable and accrued liabilities. |
Three months ended | ||||||||
December 24, | December 25, | |||||||
2022 | 2021 | |||||||
(in thousands) | ||||||||
Cash flows from investing activities | ||||||||
Purchases of property, plant and equipment | (30,910 | ) | (16,100 | ) | ||||
Proceeds from redemption and sales of marketable securities | 3,300 | 7,200 | ||||||
Proceeds from disposal of property and equipment | 729 | 231 | ||||||
Net cash used in investing activities | $ | (26,881 | ) | $ | (8,669 | ) |
● | Purchases of property, plant and equipment include spending for production growth, in addition to acquiring new equipment, infrastructure replacements, and upgrades to maintain competitive standing and position us for future opportunities. The increase over prior year period was primarily due to increased spend for new lines at various plants aimed at increasing capacity. |
● | The decrease in proceeds from redemption and sales of marketable securities from prior year period was due to a strategic decision in prior years to no longer re-invest redeemed proceeds into marketable securities given the low interest rate environment that existed in those years. |
Three months ended | ||||||||
December 24, | December 25, | |||||||
2022 | 2021 | |||||||
(in thousands) | ||||||||
Cash flows from financing activities | ||||||||
Proceeds from issuance of stock | 1,285 | 706 | ||||||
Borrowings under credit facility | 72,000 | - | ||||||
Repayment of borrowings under credit facility | (35,000 | ) | - | |||||
Payments on finance lease obligations | (39 | ) | (74 | ) | ||||
Payment of cash dividends | (13,453 | ) | (12,080 | ) | ||||
Net cash provided by (used in) financing activities | $ | 24,793 | $ | (11,448 | ) |
● | Borrowings under credit facility and repayment of borrowings under credit facility relate to the Company’s cash draws and repayments made in the three months ended December 24, 2022 to primarily fund working capital needs and investments in additional production capacity in our plants. |
● | The increase in payment of cash dividends from prior year period was due to the raising of our quarterly dividend during fiscal 2022. |
Liquidity
As of December 24, 2022, we had $54.9 million of Cash and Cash Equivalents, and $6.4 million of Marketable Securities.
In December 2021, the Company entered into an amended and restated loan agreement (the “Credit Agreement”) with our existing banks which provided for up to a $50 million revolving credit facility repayable in December 2026.
Interest accrues, at the Company’s election, at (i) the BSBY Rate (as defined in the Credit Agreement) plus an applicable margin, based upon the Consolidated Net Leverage Ratio, as defined in the Credit Agreement, or (ii) the Alternate Base Rate (a rate based on the higher of (a) the prime rate announced from time-to-time by the Administrative Agent, (b) the Federal Reserve System’s federal funds rate, plus 0.50% or (c) the Daily BSBY Rate, plus an applicable margin. The Alternate Base Rate is defined in the Credit Agreement.
The Credit Agreement requires the Company to comply with various affirmative and negative covenants, including without limitation (i) covenants to maintain a minimum specified interest coverage ratio and maximum specified net leverage ratio, and (ii) subject to certain exceptions, covenants that prevent or restrict the Company’s ability to pay dividends, engage in certain mergers or acquisitions, make certain investments or loans, incur future indebtedness, alter its capital structure or line of business, prepay subordinated indebtedness, engage in certain transactions with affiliates, or amend its organizational documents. As of December 24, 2022, the Company is in compliance with all financial covenants of the Credit Agreement.
On June 21, 2022, the Company entered into an amendment to the Credit Agreement, the “Amended Credit Agreement” which provided for an incremental increase of $175 million in available borrowings. The Amended Credit Agreement also includes an option to increase the size of the revolving credit facility by up to an amount not to exceed in the aggregate the greater of $225 million or, $50 million plus the Consolidated EBITDA of the Borrowers, subject to the satisfaction of certain terms and conditions.
As of December 24, 2022, we had $92.0 million of outstanding borrowings drawn on the Amended Credit Agreement. As of September 24, 2022, we had $123.2 million of additional borrowing capacity, after giving effect to the $9.8 million of letters of credit outstanding.
Critical Accounting Estimates
We consider revenue recognition, allowance for doubtful receivables, valuation of goodwill, valuation of long-lived assets and other intangible assets, insurance reserves, income taxes, and business combinations to be critical accounting estimates. These policies are summarized in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended September 24, 2022. These critical accounting policies require us to make estimates and assumptions that affect the amounts reported in the consolidated condensed financial statements and accompanying notes.
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 2021 annual reportour Annual Report on Form 10-K filed withfor the SEC.fiscal year ended September 24, 2022.
34 Item 4.Controls and Procedures |
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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 25,December 24, 2022, that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
There has been no change in the Company’s internal control over financial reporting during the quarter ended June 25,December 24, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. During the fiscal third quarter of 2022, the Company completed the acquisition of Dippin’ Dots. As permitted by SEC staff interpretive guidance that an assessment of a recently acquired business may be omitted from the scope of evaluation for a period of up to one year following the acquisition, management excluded Dippin’ Dots from its interim evaluation of internal controls over financial reporting.
PART II. OTHER INFORMATION
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Exhibit No.Item 1.Legal Proceedings
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.'sthis Quarterly Report on Form 10-Q, for the quarter ended June 25, 2022, formatted in inline XBRL (extensible Business Reporting Language):
(i) Consolidated Balance Sheets,
(ii) Consolidated StatementsCompany does not expect that any such proceedings will have a material adverse effect on the Company’s financial position or results of Earnings,
(iii)Consolidated Statements of Comprehensive Income,
(iv) Consolidated Statements of Cash Flows and
(v) the Notes to the Consolidated Financial Statementsoperations.
104 Cover Page Interactive Data File (embedded withinItem 1A.Risk Factors
For information on risk factors, please refer to “Risk Factors” in Part I, Item 1A of the Inline XBRLCompany’s Form 10-K for the fiscal year ended
September 24, 2022. The risks identified in that report have not changed in any material respect.
Item 2.Unregistered Sales of Equity Securities and containedthe Use of Proceeds
In October 2022, we withheld 129 shares to cover taxes associated with the vesting of certain restricted stock units held by officers and employees. In November 2022, we withheld 760 shares to cover taxes associated with the vesting of certain restricted stock units held by officers and employees.
Item 6.Exhibits
Exhibit No. | ||
10.1 | Form of Performance Share Unit | |
10.2 | Form of Service Share Unit | |
31.1 & | ||
31.2 | ||
32.1 & | ||
32.2 | Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
101.1 | The following financial information from J&J Snack Foods Corp.'s Quarterly Report on Form 10-Q for the quarter ended December 24, 2022, 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 Statements | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and containing in Exhibit 101) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Dated: February 2, 2023 | /s/ Dan Fachner | ||
| Dan Fachner |
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| President and Chief Executive Officer (Principal Executive Officer) |
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/s/ Ken A. Plunk | |||
Dated: February 2, 2023 | Ken A. Plunk, Senior Vice | ||
President and Chief Financial Officer | |||
(Principal Financial Officer) | |||
(Principal Accounting Officer) |