10-Q 1 jjsf20221224_10q.htm FORM 10-Q jjsf20221224_10q.htm
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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 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 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

 

As of January 31, 2023 there were 19,229,330 shares of the Registrant’s Common Stock outstanding.

 

1

 

 

 

INDEX

   

Page

Number

Part I.

Financial Information

 
     

Item l.

Consolidated Financial Statements

 
     

Consolidated Balance Sheets – December 24, 2022 (unaudited) and September 24, 2022

3

     
Consolidated Statements of Earnings (unaudited) – Three Months Ended December 24, 2022 and December 25, 2021

4

     
Consolidated Statements of Comprehensive Income (unaudited) – Three Months Ended December 24, 2022 and December 25, 2021

5

   
Consolidated Statements of Changes In Stockholders’ Equity (unaudited) – Three Months Ended December 24, 2022 and December 25, 2021

6

   
Consolidated Statements of Cash Flows (unaudited) – Three Months Ended December 24, 2022 and December 25, 2021

7

     

Notes to the Consolidated Financial Statements (unaudited)

8

     

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

27
     

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

34
     

Item 4.

Controls and Procedures

35

     

Part II.

Other Information

 
     
Item 6. Exhibits 35

 

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)

 

   

December 24,

         
   

2022

   

September 24,

 
   

(unaudited)

   

2022

 
Assets                
Current assets                

Cash and cash equivalents

  $ 54,866     $ 35,181  

Marketable securities held to maturity

    2,008       4,011  

Accounts receivable, net

    187,321       208,178  

Inventories

    182,642       180,473  

Prepaid expenses and other

    14,473       16,794  

Total current assets

    441,310       444,637  
                 
Property, plant and equipment, at cost                

Land

    3,714       3,714  

Buildings

    34,232       34,232  

Plant machinery and equipment

    384,749       374,566  

Marketing equipment

    280,172       274,904  

Transportation equipment

    12,306       11,685  

Office equipment

    46,073       45,865  

Improvements

    49,544       49,331  

Construction in progress

    80,453       65,753  

Total Property, plant and equipment, at cost

    891,243       860,050  

Less accumulated depreciation and amortization

    537,873       524,683  

Property, plant and equipment, net

    353,370       335,367  
                 
Other assets                

Goodwill

    184,420       184,420  

Other intangible assets, net

    190,027       191,732  

Marketable securities available for sale

    4,371       5,708  

Operating lease right-of-use assets

    50,063       51,137  

Other

    3,987       3,965  

Total other assets

    432,868       436,962  

Total Assets

  $ 1,227,548     $ 1,216,966  
                 
Liabilities and Stockholders' Equity                
Current Liabilities                

Current finance lease liabilities

  $ 128     $ 124  

Accounts payable

    91,610       108,146  

Accrued insurance liability

    16,014       15,678  

Accrued liabilities

    9,642       9,214  

Current operating lease liabilities

    13,219       13,524  

Accrued compensation expense

    16,104       21,700  

Dividends payable

    13,461       13,453  

Total current liabilities

    160,178       181,839  
                 

Long-term debt

    92,000       55,000  

Noncurrent finance lease liabilities

    303       254  

Noncurrent operating lease liabilities

    41,883       42,660  

Deferred income taxes

    69,873       70,407  

Other long-term liabilities

    3,575       3,637  
                 
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 19,229,000 and 19,219,000 respectively

    96,550       94,026  

Accumulated other comprehensive loss

    (12,842 )     (13,713 )

Retained Earnings

    776,028       782,856  

Total stockholders' equity

    859,736       863,169  

Total Liabilities and Stockholders' Equity

  $ 1,227,548     $ 1,216,966  

 

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

 
   

December 24,

   

December 25,

 
   

2022

   

2021

 
                 

Net Sales

  $ 351,343     $ 318,490  
                 

Cost of goods sold

    260,488       239,115  

Gross Profit

    90,855       79,375  
                 
Operating expenses                

Marketing

    23,699       20,907  

Distribution

    42,049       33,315  

Administrative

    16,391       10,369  

Other general (income)

    (612 )     (61 )

Total Operating Expenses

    81,527       64,530  
                 

Operating Income

    9,328       14,845  
                 
Other income (expense)                

Investment income

    685       271  

Interest expense

    (1,049 )     (18 )
                 

Earnings before income taxes

    8,964       15,098  
                 

Income tax expense

    2,331       4,007  
                 

NET EARNINGS

  $ 6,633     $ 11,091  
                 

Earnings per diluted share

  $ 0.34     $ 0.58  
                 

Weighted average number of diluted shares

    19,274       19,153  
                 

Earnings per basic share

  $ 0.35     $ 0.58  
                 

Weighted average number of basic shares

    19,222       19,085  

 

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

 
   

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.

 

5

 

 

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.

 

6

 

 

J & J SNACK FOODS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (in thousands)

 

   

Three months ended

 
   

December 24,

   

December 25,

 
   

2022

   

2021

 
Operating activities:                

Net earnings

  $ 6,633     $ 11,091  
Adjustments to reconcile net earnings to net cash provided by operating activities                

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                

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:                

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 )
                 
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 )
                 

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

    35,181       283,192  
                 

Cash and cash equivalents at end of period

  $ 54,866     $ 268,460  

 

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 24, 2022.

 

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 months ended December 24, 2022 and December 25, 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.

 

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 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 $223.6 million, consisting entirely of cash, and may be modified for certain customary post-closing purchase price adjustments.

 

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 were $13.4 million and ($0.7) million for the three months ended December 24, 2022. Dippin’ Dots is reported as part of our Food Service segment.

 

8

 

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.

 

9

 

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 Value

                 
   

as of acquisition

                 
   

date (as previously

   

Measurement

         
   

reported as of

   

Period

         
   

June 25,2022)

   

Adjustment

   

As Adjusted

 
   

(in thousands)

 
                         

Cash and cash equivalents

  $ 2,259             $ 2,259  

Accounts receivable, net

    12,257               12,257  

Inventories

    8,812       (301 )     8,511  

Prepaid expenses and other

    1,215               1,215  

Property, plant and equipment, net

    24,622       6,548       31,170  

Intangible assets

    120,400       (2,200 )     118,200  

Goodwill (2)

    66,634       (4,047 )     62,587  

Operating lease right-of-use assets

    3,514               3,514  

Other noncurrent assets

    243               243  

Total assets acquired

    239,956       -       239,956  

Liabilities assumed:

                       

Current lease liabilities

    619               619  

Accounts payable

    6,005               6,005  

Other current liabilities

    3,532               3,532  

Noncurrent lease liabilities

    2,954               2,954  

Other noncurrent liabilities

    3,285               3,285  

Total liabilities acquired

    16,395       -       16,395  

Purchase price

  $ 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  

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 )

 

10

 

 

 

Note 3

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.

 

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.

 

11

 

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 approximately $12.1 million at December 24, 2022 and $14.7 million at September 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

 

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

 
   

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  

 

12

 

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

 

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 $2.2 million on December 24, 2022 and September 24, 2022, 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 $13.5 million and $11.9 million for the three months ended December 24, 2022 and December 25, 2021, respectively.

 

13

 

 

 

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 options and restricted stock 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 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.

 

 

   

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  

 

318,172 anti-dilutive shares have been excluded in the computation of EPS for the three months ended December 25, 2021.

 

 

Note 6

Share-Based Compensation and Post-Retirement Benefits

 

At December 24, 2022, the Company has three stock-based employee compensation plans. Share-based compensation expense was recognized as follows:

 

   

Three months ended

 
   

December 24,

   

December 25,

 
   

2022

   

2021

 
   

(in thousands)

 
                 
                 

Stock options

  $ 620     $ 814  

Stock purchase plan

    227       60  

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

  $ 1,100     $ 996  
                 

The above compensation is net of tax benefits

  $ 139     $ 87  

 

14

 

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 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.

 

15

 

The total amount of gross unrecognized tax benefits is $0.3 million on both December 24, 2022 and September 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 December 24, 2022 and September 24, 2022, 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 with virtually all open for examination for three to four years.

 

Our effective tax rate for the three months ended December 24, 2022 was 26%. Our effective tax rate was 27% in last fiscal year’s quarter.

 

 

 

Note 8

New Accounting Pronouncements and Policies

 

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which changes the impairment model used to measure credit losses for most financial assets. We are required to recognize an allowance that reflects the Company’s current estimate of credit losses expected to be incurred over the life of the financial asset, including trade receivables and held-to-maturity debt securities.

 

The Company adopted this guidance in the first quarter of Fiscal 2021 using the modified retrospective transition method. The adoption of ASU 2016-13 did not have a material impact on the Company’s Consolidated Financial Statements.

 

 

 

Note 9

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 December 24, 2022, the Company is in compliance with all financial covenants terms of the Credit Agreement.

 

16

 

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, $92.0 million was outstanding under the Amended Credit 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 December 24, 2022, the amount available under the Amended Credit Agreement was $123.2 million, after giving effect to the outstanding letters of credit. As of September 24, 2022, $55.0 million was outstanding 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.

 

 

 

Note 10

Inventory

 

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 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.

 

17

 

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 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:

 

18

 

   

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  

 

19

 

 

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 December 24, 2022 and September 24, 2022 are as follows:

 

   

December 24, 2022

   

September 24, 2022

 
   

Gross

           

Gross

         
   

Carrying

   

Accumulated

   

Carrying

   

Accumulated

 
   

Amount

   

Amortization

   

Amount

   

Amortization

 
   

(in thousands)

 
FOOD SERVICE                                
                                 
Indefinite lived intangible assets                                

Trade names

  $ 85,872     $ -     $ 85,872     $ -  
                                 
Amortized intangible assets                                

Non-compete agreements

    -       -       670       670  

Franchise agreements

    8,500       425       8,500       212  

Customer relationships

    22,900       8,418       22,900       7,790  

Technology

    23,110       1,162       23,110       576  

License and rights

    1,690       1,502       1,690       1,481  

TOTAL FOOD SERVICE

  $ 142,072     $ 11,507     $ 142,742     $ 10,729  
                                 
RETAIL SUPERMARKETS                                
                                 
Indefinite lived intangible assets                                

Trade names

  $ 11,938     $ -     $ 11,938     $ -  
                                 
Amortized Intangible Assets                                

Trade names

    -       -       649       649  

Customer relationships

    7,688       6,678       7,907       6,693  

TOTAL RETAIL SUPERMARKETS

  $ 19,626     $ 6,678     $ 20,494     $ 7,342  
                                 
                                 
FROZEN BEVERAGES                                
                                 
Indefinite lived intangible assets                                

Trade names

  $ 9,315     $ -     $ 9,315     $ -  

Distribution rights

    36,100       -       36,100       -  
                                 
Amortized intangible assets                                

Customer relationships

    1,439       581       1,439       545  

Licenses and rights

    1,400       1,159       1,400       1,142  

TOTAL FROZEN BEVERAGES

  $ 48,254     $ 1,740     $ 48,254     $ 1,687  

CONSOLIDATED

  $ 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 December 24, 2022 and December 25, 2021 was $1.7 million and $0.6 million, respectively.

 

20

 

Estimated amortization expense for the next five fiscal years is approximately $4.9 million in 2023 (excluding the three months ended December 24, 2022), $6.2 million in 2024, $5.6 million in 2025 and 2026, and $4.6 million in 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)

         
                       

December 24, 2022

  $ 123,776     $ 4,146     $ 56,498     $ 184,420  
                                 

September 24, 2022

  $ 123,776     $ 4,146     $ 56,498     $ 184,420  

 

 

 

Note 13

Investments

 

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, corporate bonds and certificates of deposit are based on quoted prices for identical or similar instruments in markets that are not active.  As a result, preferred stock, corporate bonds and certificates of deposit are classified within Level 2 of the fair value hierarchy. 

 

21

 

The amortized cost, unrealized gains and losses, and fair market values of our investment securities held to maturity at December 24, 2022 are summarized as follows:

 

           

Gross

   

Gross

   

Fair

 
   

Amortized

   

Unrealized

   

Unrealized

   

Market

 
   

Cost

   

Gains

   

Losses

   

Value

 
   

(in thousands)

 
                                 

Corporate Bonds

    2,008       -       10       1,998  

Total marketable securities held to maturity

  $ 2,008     $ -     $ 10     $ 1,998  

 

The amortized cost, unrealized gains and losses, and fair market values of our investment securities available for sale at December 24, 2022 are summarized as follows:

 

           

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 with all remaining $2 million maturing within 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 24, 2022 are summarized as follows:      

 

           

Gross

   

Gross

   

Fair

 
   

Amortized

   

Unrealized

   

Unrealized

   

Market

 
   

Cost

   

Gains

   

Losses

   

Value

 
   

(in thousands)

 
                                 

Corporate Bonds

    4,011       -       21       3,990  

Total marketable securities held to maturity

  $ 4,011     $ -     $ 21     $ 3,990  

   

22

 

The amortized cost, unrealized gains and losses, and fair market values of our investment securities available for sale at September 24, 2022 are summarized as follows:

 

           

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 December 24, 2022 and September 24, 2022 are summarized as follows:

 

   

December 24, 2022

   

September 24, 2022

 
                                 
           

Fair

           

Fair

 
   

Amortized

   

Market

   

Amortized

   

Market

 
   

Cost

   

Value

   

Cost

   

Value

 
   

(in thousands)

 
                                 

Due in one year or less

  $ 2,008     $ 1,998     $ 4,011     $ 3,990  

Due after one year through five years

    -       -       -       -  

Due after five years through ten years

    -       -       -       -  

Total held to maturity securities

  $ 2,008     $ 1,998     $ 4,011     $ 3,990  

Less current portion

    2,008       1,998       4,011       3,990  

Long term held to maturity securities

  $ -     $ -     $ -     $ -  

 

Proceeds from the redemption and sale of marketable securities were $3.3 million in the three months ended December 24, 2022, and $7.2 million in the three months ended December 25, 2021, respectively. Losses of $37,000 and $44,000 were recorded in the three months ended December 24, 2022 and December 25, 2021, respectively, which included unrealized losses on marketable securities of $39,000 and $5,000 in the three months ended December 24, 2022 and December 25, 2021, respectively. We use the specific identification method to determine the cost of securities sold.

 

Total marketable securities held to maturity as of December 24, 2022 with credit ratings of BBB/BB/B had an amortized cost basis totaling $2.0 million. This rating information was obtained on December 31, 2022.

 

23

 

 

Note 14

Accumulated Other Comprehensive Income (Loss)

 

Changes to the components of accumulated other comprehensive loss are as follows:

 

   

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 12 years.

 

We have finance leases with initial noncancelable lease terms in excess of one year covering the rental of various equipment. These leases are generally for manufacturing and non-manufacturing equipment used in our business. The remaining lease terms for these finance leases range from 1 year to 5 years.

 

Significant Assumptions and Judgments

 

Contract Contains a Lease

In evaluating our contracts to determine whether a contract is or contains a lease, we considered the following:

 

 

Whether explicitly or implicitly identified assets have been deployed in the contract; and

 

 

Whether we obtain substantially all of the economic benefits from the use of that underlying asset, and we can direct how and for what purpose the asset is used during the term of the contract.

 

24

 

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 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.

 

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.

 

25

 

Amounts Recognized in the Financial Statements

 

The components of lease expense were as follows:

 

   

Three months Ended

   

Three months Ended

 
   

December 24, 2022

   

December 25, 2021

 

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

  $ 34     $ 72  

Interest on lease liabilities in Interest expense & other

    2       5  

Total finance lease cost

  $ 36     $ 77  

Short-term lease cost in Cost of goods sold and Operating Expenses

    -       -  

Total net lease cost

  $ 4,008     $ 1,535  

 

Supplemental balance sheet information related to leases is as follows:

 

   

December 24, 2022

   

September 24, 2022

 
Operating Leases                

Operating lease right-of-use assets

  $ 50,063     $ 51,137  
                 

Current operating lease liabilities

  $ 13,219     $ 13,524  

Noncurrent operating lease liabilities

    41,883       42,660  

Total operating lease liabilities

  $ 55,102     $ 56,184  
                 
Finance Leases                

Finance lease right-of-use assets in Property, plant and equipment, net

  $ 395     $ 328  
                 

Current finance lease liabilities

  $ 128     $ 124  

Noncurrent finance lease liabilities

    303       254  

Total finance lease liabilities

  $ 431     $ 378  

 

Supplemental cash flow information related to leases is as follows:

 

   

Three months Ended

   

Three months Ended

 
   

December 24, 2022

   

December 25, 2021

 
Cash paid for amounts included in the measurement of lease liabilities:                

Operating cash flows from operating leases

  $ 3,918     $ 1,534  

Operating cash flows from finance leases

  $ 2     $ 5  

Financing cash flows from finance leases

  $ 39     $ 74  
                 

Supplemental noncash information on lease liabilities arising from obtaining right-of-use assets

  $ 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 December 24, 2022 and September 24, 2022, our consolidated balance sheet included related party trade payables of approximately $4.0 million and $2.9 million, respectively.

 

26

 

 

Item 2. Managements 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 “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (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,” 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 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.

 

 

RESULTS OF OPERATIONS Three months ended December 24, 2022

 

The following discussion provides a review of results for the three months ended December 24, 2022 as compared with the three months ended December 25, 2021.

 

27

 

 

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