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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 March 30, 2024

 

or

 

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Commission File Number:         0-14616

 

J&J SNACK FOODS CORP.

(Exact name of registrant as specified in its charter)

 

New Jersey 22-1935537

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

 Identification No.)

 

350 Fellowship Road, Mt. Laurel, New Jersey 08054

(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 May 3, 2024 there were 19,386,215 shares of the Registrant’s Common Stock outstanding.

 

 

1

 

 

 

INDEX

 

 

Page

Number

Part I. 

Financial Information  
   

Item l. 

Consolidated Financial Statements  
   
Consolidated Balance Sheets – March 30, 2024 (unaudited) and September 30, 2023 3
   
Consolidated Statements of Earnings (unaudited) – Three and Six Months Ended March 30, 2024 and March 25, 2023 4
   

Consolidated Statements of Comprehensive Income (unaudited) – Three and Six Months Ended March 30, 2024 and March 25, 2023

5
   
Consolidated Statements of Changes In Stockholders’ Equity (unaudited) – Three and Six Months Ended March 30, 2024 and March 25, 2023 6
   
Consolidated Statements of Cash Flows (unaudited) –Six Months Ended March 30, 2024 and March 25, 2023 7
   
Notes to the Consolidated Financial Statements (unaudited) 8
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 21
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk 27
   
Item 4. Controls and Procedures 27
   

Part II.

Other Information  
     
Item 1. Legal Proceedings 28
     
Item 1A. Risk Factors 28
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 28
     
Item 5. Other Information 28
   
Item 6.   Exhibits 28

 

2

 

 

PART I.         FINANCIAL INFORMATION

 

Item 1.           Consolidated Financial Statements

 

J & J SNACK FOODS CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

 

   

March 30,

2024

   

September 30,

 
   

(unaudited)

   

2023

 

Assets

               

Current assets

               

Cash and cash equivalents

  $ 43,645     $ 49,581  

Accounts receivable, net

    178,312       198,129  

Inventories

    188,709       171,539  

Prepaid expenses and other

    9,944       10,963  

Total current assets

    420,610       430,212  
                 

Property, plant and equipment, at cost

               

Land

    3,684       3,684  

Buildings

    50,075       45,538  

Plant machinery and equipment

    470,836       445,299  

Marketing equipment

    310,799       296,482  

Transportation equipment

    15,078       14,367  

Office equipment

    48,265       47,393  

Improvements

    64,823       51,319  

Construction in progress

    30,346       56,116  

Total Property, plant and equipment, at cost

    993,906       960,198  

Less accumulated depreciation and amortization

    601,876       574,295  

Property, plant and equipment, net

    392,030       385,903  
                 

Other assets

               

Goodwill

    185,070       185,070  

Other intangible assets, net

    180,298       183,529  

Operating lease right-of-use assets

    154,104       88,868  

Other

    3,494       3,654  

Total other assets

    522,966       461,121  

Total Assets

  $ 1,335,606     $ 1,277,236  
                 

Liabilities and Stockholders' Equity

               

Current liabilities

               

Current finance lease liabilities

  $ 170     $ 201  

Accounts payable

    95,844       90,758  

Accrued insurance liability

    16,980       15,743  

Accrued liabilities

    8,955       14,214  

Current operating lease liabilities

    19,179       16,478  

Accrued compensation expense

    19,218       23,341  

Dividends payable

    14,249       14,209  

Total current liabilities

    174,595       174,944  
                 

Long-term debt

    17,000       27,000  

Noncurrent finance lease liabilities

    506       600  

Noncurrent operating lease liabilities

    141,726       77,631  

Deferred income taxes

    81,665       81,310  

Other long-term liabilities

    4,462       4,233  
                 

Stockholders' Equity

               

Preferred stock, $1 par value; authorized 10,000,000 shares; none issued

    -       -  

Common stock, no par value; authorized, 50,000,000 shares; issued and outstanding 19,386,000 and 19,332,000 respectively

    124,280       114,556  

Accumulated other comprehensive loss

    (7,883 )     (10,166 )

Retained Earnings

    799,255       807,128  

Total stockholders' equity

    915,652       911,518  

Total Liabilities and Stockholders' Equity

  $ 1,335,606     $ 1,277,236  

 

The accompanying notes are an integral part of these statements.

 

3

 

 

 

J & J SNACK FOODS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

(in thousands, except per share amounts)

 

   

Three months ended

   

Six months ended

 
   

March 30,

   

March 25,

   

March 30,

   

March 25,

 
   

2024

   

2023

   

2024

   

2023

 
                                 

Net sales

  $ 359,734     $ 337,854     $ 708,042     $ 689,197  
                                 

Cost of goods sold

    251,491       247,470       505,214       507,958  

Gross profit

    108,243       90,384       202,828       181,239  
                                 

Operating expenses

                               

Marketing

    27,650       24,017       55,122       47,716  

Distribution

    44,249       38,188       84,552       80,237  

Administrative

    18,521       17,919       36,720       34,310  

Other general expense

    (81 )     67       (1,153 )     (545 )

Total operating expenses

    90,339       80,191       175,241       161,718  
                                 

Operating income

    17,904       10,193       27,587       19,521  
                                 

Other income (expense)

                               

Investment income

    684       401       1,482       1,086  

Interest expense

    (429 )     (1,334 )     (989 )     (2,383 )
                                 

Earnings before income taxes

    18,159       9,260       28,080       18,224  
                                 

Income tax expense

    4,830       2,389       7,469       4,720  
                                 

NET EARNINGS

  $ 13,329     $ 6,871     $ 20,611     $ 13,504  
                                 

Earnings per diluted share

  $ 0.69     $ 0.36     $ 1.06     $ 0.70  
                                 

Weighted average number of diluted shares

    19,418       19,295       19,411       19,285  
                                 

Earnings per basic share

  $ 0.69     $ 0.36     $ 1.06     $ 0.70  
                                 

Weighted average number of basic shares

    19,380       19,238       19,362       19,230  

 

The accompanying notes are an integral part of these statements.

 

4

 

 

 

J&J SNACK FOODS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(in thousands)

 

   

Three months ended

   

Six months ended

 
   

March 30,

   

March 25,

   

March 30,

   

March 25,

 
   

2024

   

2023

   

2024

   

2023

 
                                 

Net earnings

  $ 13,329     $ 6,871     $ 20,611     $ 13,504  
                                 

Foreign currency translation adjustments

    348       1,068       2,283       1,939  
Total other comprehensive income, net of tax     348       1,068       2,283       1,939  
                                 

Comprehensive income

  $ 13,677     $ 7,939     $ 22,894     $ 15,443  

 

The accompanying notes are an integral part of these statements.

 

5

 

 

 

J & J SNACK FOODS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Unaudited) (in thousands)

 

                   

Accumulated

                 
                   

Other

                 
   

Common Stock

   

Comprehensive

   

Retained

         
   

Shares

   

Amount

   

Loss

   

Earnings

   

Total

 
                                         

Balance at September 30, 2023

    19,332     $ 114,556     $ (10,166 )   $ 807,128     $ 911,518  
                                         
Issuance of common stock upon exercise of stock options     35       4,481       -       -       4,481  

Foreign currency translation adjustment

    -       -       1,935       -       1,935  

Dividends declared

    -       -       -       (14,235 )     (14,235 )

Share-based compensation

    -       1,480       -       -       1,480  

Net earnings

    -       -       -       7,282       7,282  

Balance at December 30, 2023

    19,367     $ 120,517     $ (8,231 )   $ 800,175     $ 912,461  
                                         

Issuance of common stock upon exercise of stock options

    9       715       -       -       715  

Issuance of common stock for employee stock purchase plan

    10       1,320       -       -       1,320  

Foreign currency translation adjustment

    -       -       348       -       348  

Dividends declared

    -       -       -       (14,249 )     (14,249 )

Share-based compensation

    -       1,728       -       -       1,728  

Net earnings

    -       -       -       13,329       13,329  

Balance at March 30, 2024

    19,386     $ 124,280     $ (7,883 )   $ 799,255     $ 915,652  

 

 

                   

Accumulated

                 
                   

Other

                 
   

Common Stock

   

Comprehensive

   

Retained

         
   

Shares

   

Amount

   

Loss

   

Earnings

   

Total

 
                                         

Balance at 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  

Balance at December 24, 2022

    19,229     $ 96,550     $ (12,842 )   $ 776,028     $ 859,736  
                                         

Issuance of common stock upon exercise of stock options

    14       1,713       -       -       1,713  

Issuance of common stock for employee stock purchase plan

    9       1,061       -       -       1,061  

Foreign currency translation adjustment

    -       -       1,068       -       1,068  

Dividends declared

    -       -       -       (13,475 )     (13,475 )

Share-based compensation

    -       1,313       -       -       1,313  

Net earnings

    -       -       -       6,871       6,871  

Balance at March 25, 2023

    19,252     $ 100,637     $ (11,774 )   $ 769,424     $ 858,287  

 

The accompanying notes are an integral part of these statements.

 

6

 

 

 

J & J SNACK FOODS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (in thousands)

 

   

Six months ended

 
   

March 30,

   

March 25,

 
   

2024

   

2023

 

Operating activities:

               

Net earnings

  $ 20,611     $ 13,504  

Adjustments to reconcile net earnings to net cash provided by operating activities

               

Depreciation of fixed assets

    30,960       27,236  

Amortization of intangibles and deferred costs

    3,232       3,385  

(Gain) loss from disposals of property & equipment

    (17 )     (354 )

Share-based compensation

    3,208       2,552  

Deferred income taxes

    377       (787 )

(Gain) loss on marketable securities

    -       (22 )

Other

    160       (255 )

Changes in assets and liabilities, net of effects from purchase of companies

               

Decrease in accounts receivable

    20,110       10,541  

(Increase) Decrease in inventories

    (17,027 )     823  

Decrease in prepaid expenses

    1,046       4,787  

(Decrease) in accounts payable and accrued liabilities

    (962 )     (25,739 )

Net cash provided by operating activities

    61,698       35,671  
                 

Investing activities:

               

Purchases of property, plant and equipment

    (36,626 )     (49,124 )

Proceeds from redemption and sales of marketable securities

    -       5,300  

Proceeds from disposal of property and equipment

    152       797  

Net cash used in investing activities

    (36,474 )     (43,027 )
                 

Financing activities:

               

Proceeds from issuance of stock

    6,516       4,059  

Borrowings under credit facility

    35,000       92,000  

Repayment of borrowings under credit facility

    (45,000 )     (55,000 )

Payments on finance lease obligations

    (110 )     (71 )

Payment of cash dividend

    (28,444 )     (26,914 )

Net cash provided by (used in) financing activities

    (32,038 )     14,074  
                 

Effect of exchange rates on cash and cash equivalents

    878       1,384  
                 
Net increase (decrease) in cash and cash equivalents     (5,936 )     8,102  

Cash and cash equivalents at beginning of period

    49,581       35,181  

Cash and cash equivalents at end of period

  $ 43,645     $ 43,283  

 

The accompanying notes are an integral part of these statements.

 

7

 

 

J & J SNACK FOODS CORP. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

 

Note 1

Basis of Presentation

 

The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all information and notes required by generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2023.

 

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 six months ended March 30, 2024 and March 25, 2023 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.

 

While we believe that the disclosures presented are adequate to make the information not misleading, it is suggested that these consolidated financial statements be read in conjunction with the audited consolidated financial statements and the notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2023.

 

 

 

Note 2

Revenue Recognition

 

We 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 contract liability on our balance sheet.

 

8

 

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 $21.9 million at March 30, 2024 and $18.9 million at September 30, 2023.

 

Warranties & Returns

 

We provide all customers with a standard or assurance type warranty. Either stated or implied, we provide assurance the related products will comply with all agreed-upon specifications and other warranties provided under the law. No services beyond an assurance warranty are provided to our customers.

 

We do not grant a general right of return. However, customers may return defective or non-conforming products. Customer remedies may include either a cash refund or an exchange of the product. We do not estimate a right of return and related refund liability as returns of our products are rare.

 

Contract Balances

 

Our customers are billed for service contracts in advance of performance and therefore we have contract liability on our balance sheet as follows:

 

   

Three months ended

   

Six months ended

 
   

March 30,

   

March 25,

   

March 30,

   

March 25,

 
   

2024

   

2023

   

2024

   

2023

 
   

(in thousands)

   

(in thousands)

 
                                 

Beginning balance

  $ 4,935     $ 4,767     $ 5,306     $ 4,926  

Additions to contract liability

    1,645       1,527       3,045       2,917  

Amounts recognized as revenue

    (1,831 )     (1,465 )     (3,602 )     (3,014 )

Ending balance

  $ 4,749     $ 4,829     $ 4,749     $ 4,829  

 

 

Disaggregation of Revenue

 

See Note 10 for disaggregation of our net sales by class of similar product and type of customer.

 

Allowance for Estimated Credit Losses

 

The Company continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses. The allowance for estimated credit losses 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 estimated credit losses was $3.6 million and $3.2 million on March 30, 2024 and September 30, 2023, respectively.

 

9

 

 

Note 3

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 and technology arising from acquisitions are amortized by the straight-line method over periods ranging from 2 to 20 years. Depreciation expense was $15.8 million and $13.8 million for the three months ended March 30, 2024 and March 25, 2023, respectively and $31.0 million and $27.2 million for the six months ended March 30, 2024 and March 25, 2023, respectively.

 

 

 

Note 4

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 options and service share units (“RSU”)’s) or other contracts to issue common stock were exercised and converted into common stock. Our calculation of EPS is as follows:

 

   

Three months ended March 30, 2024

 
   

Income

   

Shares

   

Per Share

 
   

(Numerator)

   

(Denominator)

   

Amount

 
   

(in thousands, except per share amounts)

 

Basic EPS

                       

Net earnings available to common stockholders

  $ 13,329       19,380     $ 0.69  
                         

Effect of dilutive securities

                       

RSU's and options

    -       38       -  
                         

Diluted EPS

                       

Net earnings available to common stockholders plus assumed conversions

  $ 13,329       19,418     $ 0.69  

 

213,851 anti-dilutive shares have been excluded in the computation of EPS for the three months ended March 30, 2024.

 

 

   

Six months ended March 30, 2024

 
   

Income

   

Shares

   

Per Share

 
   

(Numerator)

   

(Denominator)

   

Amount

 
   

(in thousands, except per share amounts)

 

Basic EPS

                       

Net earnings available to common stockholders

  $ 20,611       19,362     $ 1.06  
                         

Effect of dilutive securities

                       

RSU's and options

    -       49       -  
                         

Diluted EPS

                       

Net earnings available to common stockholders plus assumed conversions

  $ 20,611       19,411     $ 1.06  

 

214,932 anti-dilutive shares have been excluded in the computation of EPS for the six months ended March 30, 2024.

 

 

   

Three months ended March 25, 2023

 
   

Income

   

Shares

   

Per Share

 
   

(Numerator)

   

(Denominator)

   

Amount

 
   

(in thousands, except per share amounts)

 

Basic EPS

                       

Net earnings available to common stockholders

  $ 6,871       19,238     $ 0.36  
                         

Effect of dilutive securities

                       

RSU's and options

    -       57       -  
                         

Diluted EPS

                       

Net earnings available to common stockholders plus assumed conversions

  $ 6,871       19,295     $ 0.36  

 

381,735 anti-dilutive shares have been excluded in the computation of EPS for the three months ended March 25, 2023.

 

10

 

   

Six months ended March 25, 2023

 
   

Income

   

Shares

   

Per Share

 
   

(Numerator)

   

(Denominator)

   

Amount

 
   

(in thousands, except per share amounts)

 

Basic EPS

                       

Net earnings available to common stockholders

  $ 13,504       19,230     $ 0.70  
                         

Effect of dilutive securities

                       

RSU's and options

    -       55       -  
                         

Diluted EPS

                       

Net earnings available to common stockholders plus assumed conversions

  $ 13,504       19,285     $ 0.70  

 

386,510 anti-dilutive shares have been excluded in the computation of EPS for the six months ended March 25, 2023.

 

 

 

Note 5

Share-Based Compensation and Post-Retirement Benefits

 

At March 30, 2024, the Company has three stock-based employee compensation plans. Share-based compensation expense was recognized as follows:

 

   

Three months ended

   

Six months ended

 
   

March 30,

   

March 25,

   

March 30,

   

March 25,

 
   

2024

   

2023

   

2024

   

2023

 
   

(in thousands)

   

(in thousands)

 
                                 

Stock options

  $ 364     $ 559     $ 727     $ 1,179  

Stock purchase plan

    139       197       238       424  

Stock issued to outside directors

    34       27       74       27  

Service share units issued to employees

    444       193       826       374  

Performance share units issued to employees

    372       171       647       243  

Total share-based compensation

  $ 1,353     $ 1,147     $ 2,512     $ 2,247  
                                 

The above compensation is net of tax benefits

  $ 375     $ 166     $ 696     $ 305  

 

 

The fair value of each option grant is estimated on the date of grant using the Black-Scholes options-pricing model.

 

Expected volatility is based on the historical volatility of the price of our common shares over the past 51 months for 5-year options and 10 years for 10-year options. We use historical information to estimate expected life and forfeitures within the valuation model. The expected term of awards represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Compensation cost is recognized using a straight-line method over the vesting or service period and is net of estimated forfeitures.

 

The Company did not grant any stock options during the six months ended March 30, 2024 or during the six months ended March 25, 2023.

 

During the three and six months ended March 30, 2024, the Company issued 1,795 and 11,546 service share units (“RSU”)’s, respectively. During the six months ended March 25, 2023, the Company issued 9,900 RSU’s. Each RSU entitles the awardee to one share of common stock upon vesting. 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. No such RSU’s were issued in the three months ended March 25, 2023.

 

During the three and six months ended March 30, 2024, the Company also issued 1,795 and 11,538 performance share units (“PSU”)’s, respectively. During the six months ended March 25, 2023, the Company issued 18,641 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. No such PSU’s were issued in the three months ended March 25, 2023.

 

11

 

 

Note 6

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 $0.3 million on both March 30, 2024 and September 30, 2023, respectively, all of which would impact our effective tax rate over time, if recognized. We recognize interest and penalties related to uncertain tax positions as a part of the provision for income taxes. As of March 30, 2024 and September 30, 2023, the Company has $0.3 million of accrued interest and 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. Virtually all the returns noted above are open for examination for three to four years.

 

Our effective tax rate was 26.6% for the three months ended March 30, 2024, as compared with 25.8% in the prior year period.

 

Our effective tax rate was 26.6% for the six months ended March 30, 2024, as compared with 25.9% in the prior year period.

 

 

 

Note 7

New Accounting Pronouncements and Policies

 

In December 2022, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2022-06, "Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848", to provide optional guidance to temporarily ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. Preceding the issuance of ASU 2020-04, which established ASC 848, the United Kingdom's Financial Conduct Authority ("FCA") announced that it would no longer need to persuade or compel banks to submit to LIBOR after December 31, 2021. In response, the FASB established December 31, 2022 as the expiration date for ASC 848. In March 2021, the FCA announced the intended cessation date of the overnight 1-, 3-, 6-, and 12-month USD LIBOR would be June 30, 2023. Because the current relief in Topic 848 may not cover a period of time during which a significant number of modifications may take place, this update deferred the sunset date in Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. This guidance is not expected to have a material impact on our consolidated financial statements and disclosures.

 

In September 2022, the FASB issued ASU No. 2022-04 “Liabilities – Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations”. This guidance requires annual and interim disclosures for entities that use supplier finance programs in connection with the purchase of goods and services. These amendments are effective for fiscal years beginning after December 15, 2022, except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023. The Company adopted this guidance during the three months ended December 30, 2023. The adoption of this guidance did not have a material impact on our consolidated financial statements and disclosures.

 

In November 2023, the FASB issued ASU No. 2023-07 “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” This guidance requires all public entities to provide enhanced disclosures about significant segment expenses. The amendments in this ASU are to be applied retrospectively and are effective for fiscal years beginning after December 15, 2023 and for interim periods within fiscal years beginning after December 15, 2024. We are currently assessing the impact of the guidance on our consolidated financial statements and disclosures.

 

In December 2023, the FASB issued ASU No. 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” This guidance enhances the transparency around income tax information through improvements to income tax disclosures, primarily related to the effective rate reconciliation and income taxes paid, to improve the overall effectiveness of income tax disclosures. The amendments in the ASU are effective for fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently assessing the impact of the guidance on our consolidated financial statements and disclosures.

 

12

 

In March 2024, the SEC adopted final rules to require disclosures about certain climate-related information in registration statements and annual reports. In April 2024, the SEC issued an order to stay the rules pending the completion of judicial review of multiple petitions challenging the rules. The rules will require disclosure of, amongst other things, material climate-related risks, how the board of directors and management oversee such risks, and the actual and potential material impacts of such risks. The rules also require disclosure around material climate-related targets and goals, Scope 1 and Scope 2 green-house gas emissions, and the financial impacts of severe weather events and other natural conditions. If the rules are ultimately implemented, their adoption will be phased, and accordingly, we would be required to begin to make certain disclosures for our annual period ending September 26, 2026, applied prospectively. We are currently assessing the impact of the guidance on our consolidated financial statements and disclosures.

 

 

 

Note 8

Long-Term Debt

 

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 March 30, 2024, the Company is in compliance with all financial covenant 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 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 March 30, 2024, $17.0 million was outstanding under the Amended Credit Agreement with a weighted average interest rate of 6.94%. These borrowings have been classified as Long-Term Debt on the Company’s Balance Sheet. As of March 30, 2024, the amount available under the Amended Credit Agreement was $198.2 million, after giving effect to the outstanding letters of credit. As of September 30, 2023, $27.0 million was outstanding under the Credit Agreement. As of September 30, 2023, the amount available under the Amended Agreement was $188.2 million, after giving effect to the outstanding letters of credit.

 

 

 

Note 9

Inventory

 

Inventories consist of the following:

 

   

March 30,

   

September 30,

 
   

2024

   

2023

 
   

(unaudited)

         
   

(in thousands)

 
                 

Finished goods

  $ 100,638     $ 86,472  

Raw materials

    31,001       30,537  

Packaging materials

    13,675       12,484  

Equipment parts and other

    43,395       42,046  

Total inventories

  $ 188,709     $ 171,539  

 

13

 

 

Note 10

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 above which is available to our Chief Operating Decision Maker.

 

Our 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 and casual dining restaurants; 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 or for take-away.

 

Retail Supermarkets

 

The primary products sold to the retail supermarket channel are soft pretzel products – including SUPERPRETZEL and AUNTIE ANNE’S, frozen novelties including LUIGI’S Real Italian Ice, MINUTE MAID Juice Bars and Soft Frozen Lemonade, WHOLE FRUIT frozen fruit bars and sorbet, DOGSTERS ice cream style treats for dogs, 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

 

We sell frozen beverages to the foodservice industry primarily under the names ICEE, SLUSH PUPPIE and PARROT ICE in the United States, Mexico and Canada. We also provide repair and maintenance services to customers for customer-owned equipment.

 

14

 

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

   

Six months ended

 
   

March 30,

   

March 25,

   

March 30,

   

March 25,

 
   

2024

   

2023

   

2024

   

2023

 
   

(unaudited)

   

(unaudited)

 
   

(in thousands)

   

(in thousands)

 

Sales to external customers:

                               

Food Service

                               

Soft pretzels

  $ 54,328     $ 55,492     $ 104,456     $ 107,715  

Frozen novelties

    27,713       26,607       48,763       48,372  

Churros

    30,825       24,920       58,886       50,677  

Handhelds

    19,504       20,309       41,551       43,881  

Bakery

    91,907       85,300       193,889       194,248  

Other

    5,713       5,653       11,054       11,685  

Total Food Service

  $ 229,990     $ 218,281     $ 458,599     $ 456,578  
                                 

Retail Supermarket

                               

Soft pretzels

  $ 16,453     $ 16,013     $ 34,900     $ 30,498  

Frozen novelties

    23,676       20,770       36,537       38,739  

Biscuits

    6,207       5,858       13,239       13,771  

Handhelds

    7,194       4,099       12,704       6,991  

Coupon redemption

    (769 )     (375 )     (1,101 )     (551 )

Other

    129       (5 )     370       (15 )

Total Retail Supermarket

  $ 52,890     $ 46,360     $ 96,649     $ 89,433  
                                 

Frozen Beverages

                               

Beverages

  $ 44,666     $ 41,799     $ 86,616     $ 80,458  

Repair and maintenance service

    23,231       22,585       47,790       46,412  

Machines revenue

    8,221       8,252       17,110       15,263  

Other

    736       577       1,278       1,053  

Total Frozen Beverages

  $ 76,854     $ 73,213     $ 152,794     $ 143,186  
                                 

Consolidated sales

  $ 359,734     $ 337,854     $ 708,042     $ 689,197  
                                 

Depreciation and amortization:

                               

Food Service

  $ 11,173     $ 9,597     $ 21,846     $ 19,055  

Retail Supermarket

    525       492       1,052       883  

Frozen Beverages

    5,702       5,351       11,294       10,683  

Total depreciation and amortization

  $ 17,400     $ 15,440     $ 34,192     $ 30,621  
                                 

Operating Income:

                               

Food Service

  $ 7,931     $ 5,133     $ 13,947     $ 11,520  

Retail Supermarket

    5,110       487       5,562       1,598  

Frozen Beverages

    4,863       4,573       8,078       6,403  

Total operating income

  $ 17,904     $ 10,193     $ 27,587     $ 19,521  
                                 

Capital expenditures:

                               

Food Service

  $ 9,364     $ 13,744     $ 21,229     $ 38,606  

Retail Supermarket

    -       105       2       1,479  

Frozen Beverages

    7,332       4,365       15,395       9,039  

Total capital expenditures

  $ 16,696     $ 18,214     $ 36,626     $ 49,124  
                                 

Assets:

                               

Food Service

  $ 963,870     $ 910,573     $ 963,870     $ 910,573  

Retail Supermarket

    36,650       12,162       36,650       12,162  

Frozen Beverages

    335,086       302,222       335,086       302,222  

Total assets

  $ 1,335,606     $ 1,224,957     $ 1,335,606     $ 1,224,957  

 

15

 

 

Note 11

Goodwill and Intangible Assets

 

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 March 30, 2024 and September 30, 2023 are as follows:

 

    March 30, 2024    

September 30, 2023

 
   

Gross

           

Gross

         
   

Carrying

   

Accumulated

   

Carrying

   

Accumulated

 
   

Amount

   

Amortization

   

Amount

   

Amortization

 
   

(in thousands)

 

FOOD SERVICE

                               
                                 

Indefinite lived intangible assets

                               

Trade names

  $ 84,194     $ -     $ 84,194     $ -  
                                 

Amortized intangible assets

                               

Franchise agreements

    8,500       1,488       8,500