J&J Snack Foods Corp 10-Q for FY2022 Q2
J&J Snack Foods Corp (JJSF)
About this 10-Q
J&J Snack Foods Corp filed this 10-Q on May 5, 2022, covering the quarter ended March 26, 2022 (FY2022 Q2).
Headline figures
Quarter ended March 26, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $281.51M
- up 9.9% from $256.18M a year earlier
- Net income
- $3.27M
- down 46.0% from net income of $6.06M a year earlier
- Diluted EPS
- $0.17
- down 46.9% from $0.32 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the period ended
or
| | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File Number:
J&J SNACK FOODS CORP.
(Exact name of registrant as specified in its charter)
| | |
| (State or other jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification No.) |
(Address of principal executive offices)
Telephone (
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 | ||
| | | The |
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.
| ☒ | | ☐ | 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).
| ☒ | | ☐ | 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.
| | ☒ | 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 April 29, 2022 there were
INDEX
| Page |
|
| Part I. Financial Information |
|
| Item l. Consolidated Financial Statements |
|
| Consolidated Balance Sheets – March 26, 2022 (unaudited) and September 25, 2021 |
3 |
| Consolidated Statements of Earnings (unaudited) – Three and Six Months Ended March 26, 2022 and March 27, 2021 |
4 |
| Consolidated Statements of Comprehensive Income (unaudited) – Three and Six Months Ended March 26, 2022 and March 27, 2021 |
5 |
| Consolidated Statements of Changes In Stockholders’ Equity (unaudited) – Three and Six Months Ended March 26, 2022 and March 27, 2021 |
6 |
| Consolidated Statements of Cash Flows (unaudited) – Six Months Ended March 26, 2022 and March 27, 2021 |
7 |
| Notes to the Consolidated Financial Statements (unaudited) |
8 |
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
26 |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk |
30 |
| Item 4. Controls and Procedures |
30 |
| Part II. Other Information |
31 |
| Item 6. Exhibits |
31 |
| J & J SNACK FOODS CORP. AND SUBSIDIARIES |
|||
| CONSOLIDATED BALANCE SHEETS |
|||
| (in thousands, except share amounts) |
| March 26, | ||||||||
| 2022 | September 25, | |||||||
| (unaudited) | 2021 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Marketable securities held to maturity | ||||||||
| Accounts receivable, net | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, at cost | ||||||||
| Land | ||||||||
| Buildings | ||||||||
| Plant machinery and equipment | ||||||||
| Marketing equipment | ||||||||
| Transportation equipment | ||||||||
| Office equipment | ||||||||
| Improvements | ||||||||
| Construction in progress | ||||||||
| Total Property, plant and equipment, at cost | ||||||||
| Less accumulated depreciation and amortization | ||||||||
| Property, plant and equipment, net | ||||||||
| Other assets | ||||||||
| Goodwill | ||||||||
| Other intangible assets, net | ||||||||
| Marketable securities held to maturity | ||||||||
| Marketable securities available for sale | ||||||||
| Operating lease right-of-use assets | ||||||||
| Other | ||||||||
| Total other assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders' Equity | ||||||||
| Current Liabilities | ||||||||
| Current finance lease liabilities | $ | $ | ||||||
| Accounts payable | ||||||||
| Accrued insurance liability | ||||||||
| Accrued liabilities | ||||||||
| Current operating lease liabilities | ||||||||
| Accrued compensation expense | ||||||||
| Dividends payable | ||||||||
| Total current liabilities | ||||||||
| Noncurrent finance lease liabilities | ||||||||
| Noncurrent operating lease liabilities | ||||||||
| Deferred income taxes | ||||||||
| Other long-term liabilities | ||||||||
| Stockholders' Equity | ||||||||
| Preferred stock, $ par value; authorized shares; issued | ||||||||
| Common stock, par value; authorized, shares; issued and outstanding and respectively | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Retained Earnings | ||||||||
| Total stockholders' equity | ||||||||
| Total Liabilities and Stockholders' Equity | $ | $ | ||||||
| The accompanying notes are an integral part of these statements. |
| J & J SNACK FOODS CORP. AND SUBSIDIARIES |
|
| CONSOLIDATED STATEMENTS OF EARNINGS |
|
| (Unaudited) |
|
| (in thousands, except per share amounts) |
| Three Months Ended |
Six Months Ended |
|||||||||||||||
| March 26, |
March 27, |
March 26, |
March 27, |
|||||||||||||
| 2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Net sales |
$ | $ | $ | $ | ||||||||||||
| Cost of goods sold |
||||||||||||||||
| Gross profit |
||||||||||||||||
| Operating expenses |
||||||||||||||||
| Marketing |
||||||||||||||||
| Distribution |
||||||||||||||||
| Administrative |
||||||||||||||||
| Other general expense |
( |
) | ( |
) | ||||||||||||
| Total operating expenses |
||||||||||||||||
| Operating income |
||||||||||||||||
| Other income (expense) |
||||||||||||||||
| Investment income |
||||||||||||||||
| Interest expense & other |
( |
) | ( |
) | ( |
) | ||||||||||
| Earnings before income taxes |
||||||||||||||||
| Income taxes |
||||||||||||||||
| NET EARNINGS |
$ | $ | $ | $ | ||||||||||||
| Earnings per diluted share |
$ | $ | $ | $ | ||||||||||||
| Weighted average number of diluted shares |
||||||||||||||||
| Earnings per basic share |
$ | $ | $ | $ | ||||||||||||
| Weighted average number of basic shares |
||||||||||||||||
| The accompanying notes are an integral part of these statements. |
| J & J SNACK FOODS CORP. AND SUBSIDIARIES |
||||||||
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
||||||||
| (Unaudited) |
||||||||
| (in thousands) |
| Three Months Ended |
Six months ended |
|||||||||||||||
| March 26, |
March 27, |
March 26, |
March 27, |
|||||||||||||
| 2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Net earnings |
$ | $ | $ | $ | ||||||||||||
| Foreign currency translation adjustments |
( |
) | ||||||||||||||
| Total other comprehensive income (loss), net of tax |
( |
) | ||||||||||||||
| Comprehensive income |
$ | $ | $ | $ | ||||||||||||
| The accompanying notes are an integral part of these statements. |
| J & J Snack Foods Corp. and Subsidiaries |
||||||||||
| CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY |
||||||||||
| (in thousands) |
| Accumulated | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Common Stock | Comprehensive | Retained | ||||||||||||||||||
| Shares | Amount | Loss | Earnings | Total | ||||||||||||||||
| Balance as September 25, 2021 | $ | $ | ( | ) | $ | $ | ||||||||||||||
| Issuance of common stock upon exercise of stock options | ||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | |||||||||||||||
| Dividends declared | - | ( | ) | ( | ) | |||||||||||||||
| Share-based compensation | - | |||||||||||||||||||
| Net earnings | - | |||||||||||||||||||
| Balance at December 25, 2021 | $ | $ | ( | ) | $ | $ | ||||||||||||||
| Issuance of common stock upon exercise of stock options | ||||||||||||||||||||
| Issuance of common stock for employee stock purchase plan | ||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||
| Dividends declared | - | ( | ) | ( | ) | |||||||||||||||
| Share-based compensation | - | |||||||||||||||||||
| Net earnings | - | |||||||||||||||||||
| Balance at March 26, 2022 | $ | $ | ( | ) | $ | $ | ||||||||||||||
| Accumulated |
||||||||||||||||||||
| Other |
||||||||||||||||||||
| Common Stock |
Comprehensive |
Retained |
||||||||||||||||||
| Shares |
Amount |
Loss |
Earnings |
Total |
||||||||||||||||
| Balance as September 26, 2020 |
$ | $ | ( |
) | $ | $ | ||||||||||||||
| Issuance of common stock upon exercise of stock options |
||||||||||||||||||||
| Foreign currency translation adjustment |
- | |||||||||||||||||||
| Dividends declared |
- | ( |
) | ( |
) | |||||||||||||||
| Share-based compensation |
- | |||||||||||||||||||
| Net earnings |
- | |||||||||||||||||||
| Balance at December 26, 2020 |
$ | $ | ( |
) | $ | $ | ||||||||||||||
| Issuance of common stock upon exercise of stock options |
||||||||||||||||||||
| Issuance of common stock for employee stock purchase plan |
||||||||||||||||||||
| Foreign currency translation adjustment |
- | ( |
) | ( |
) | |||||||||||||||
| Dividends declared |
- | ( |
) | ( |
) | |||||||||||||||
| Share-based compensation |
- | |||||||||||||||||||
| Net earnings |
- | |||||||||||||||||||
| Balance at March 27, 2021 |
$ | $ | ( |
) | $ | $ | ||||||||||||||
| The accompanying notes are an integral part of these statements. |
| J & J SNACK FOODS CORP. AND SUBSIDIARIES |
|||
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
|||
| (Unaudited) (in thousands) |
| Six Months Ended |
||||||||
| March 26, |
March 27, |
|||||||
| 2022 |
2021 |
|||||||
| Operating activities: |
||||||||
| Net earnings |
$ | $ | ||||||
| Adjustments to reconcile net earnings to net cash provided by operating activities: |
||||||||
| Depreciation of fixed assets |
||||||||
| Amortization of intangibles and deferred costs |
||||||||
| Loss from disposals of property & equipment |
||||||||
| Share-based compensation |
||||||||
| Deferred income taxes |
( |
) | ( |
) | ||||
| Loss (Gain) on marketable securities |
( |
) | ||||||
| Other |
( |
) | ( |
) | ||||
| Changes in assets and liabilities net of effects from purchase of companies |
||||||||
| Increase in accounts receivable |
( |
) | ( |
) | ||||
| Increase in inventories |
( |
) | ( |
) | ||||
| Increase in prepaid expenses |
( |
) | ( |
) | ||||
| (Decrease) increase in accounts payable and accrued liabilities |
( |
) | ||||||
| Net cash (used in) provided by operating activities |
( |
) | ||||||
| Investing activities: |
||||||||
| Purchases of property, plant and equipment |
( |
) | ( |
) | ||||
| Proceeds from redemption and sales of marketable securities |
||||||||
| Proceeds from disposal of property and equipment |
||||||||
| Other |
||||||||
| Net cash (used in) provided by investing activities |
( |
) | ||||||
| Financing activities: |
||||||||
| Proceeds from issuance of stock |
||||||||
| Payments on finance lease obligations |
( |
) | ( |
) | ||||
| Payment of cash dividend |
( |
) | ( |
) | ||||
| Net cash used in financing activities |
( |
) | ( |
) | ||||
| Effect of exchange rate on cash and cash equivalents |
( |
) | ||||||
| Net (decrease) increase in cash and cash equivalents |
( |
) | ||||||
| Cash and cash equivalents at beginning of period |
||||||||
| Cash and cash equivalents at end of period |
$ | $ | ||||||
| The accompanying notes are an integral part of these statements. |
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
| Note 1 |
The accompanying unaudited 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 25, 2021. |
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position and the results of operations and cash flows.
The results of operations for the three and six months ended March 26, 2022 and March 27, 2021 are not necessarily indicative of results for the full year. Sales of our frozen beverages and frozen novelties are generally higher in the third and fourth quarters due to warmer weather. Also, approximately 2/3 of our sales are to venues and locations that previously shut down or sharply curtailed their foodservice operations as a result of COVID-19. While the majority of these venues have reopened, the extent of the future impact of COVID-19 on our operations depends on future developments of the virus and its effects which are uncertain at this time.
While we believe that the disclosures presented are adequate to make the information not misleading, we suggest that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 25, 2021.
Note 2
Revenue Recognition
When Performance Obligations Are Satisfied
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account for revenue recognition. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.
The singular performance obligation of our customer contracts for product and machine sales is determined by each individual purchase order and the respective products ordered, with revenue being recognized at a point-in-time when the obligation under the terms of the agreement is satisfied and product control is transferred to our customer. Specifically, control transfers to our customers when the product is delivered to, installed, or picked up by our customers based upon applicable shipping terms, as our customers can direct the use and obtain substantially all of the remaining benefits from the product at this point in time. The performance obligations in our customer contracts for product are generally satisfied within 30 days.
The singular performance obligation of our customer contracts for time and material repair and maintenance equipment service is the performance of the repair and maintenance with revenue being recognized at a point-in-time when the repair and maintenance is completed.
The singular performance obligation of our customer repair and maintenance equipment service contracts is the performance of the repair and maintenance with revenue being recognized over the time the service is expected to be performed. Our customers are billed for service contracts in advance of performance and therefore we have a contract liability recorded within Accrued liabilities on our balance sheet.
Significant Payment Terms
In general, within our customer contracts, the purchase order identifies the product, quantity, price, pick-up allowances, payment terms and final delivery terms. Although some payment terms may be more extended, presently the majority of our payment terms are 30 days. As a result, we have used the available practical expedient and, consequently, do not adjust our revenues for the effects of a significant financing component.
Shipping
All amounts billed to customers related to shipping and handling are classified as revenues; therefore, we recognize revenue for shipping and handling fees at the time the products are shipped or when services are performed. The cost of shipping products to the customer is recognized at the time the products are shipped to the customer and our policy is to classify them as Distribution expenses.
Variable Consideration
In addition to fixed contract consideration, our contracts include some form of variable consideration, including sales discounts, trade promotions and certain other sales and consumer incentives, including rebates and coupon redemptions. In general, variable consideration is treated as a reduction in revenue when the related revenue is recognized. Depending on the specific type of variable consideration, we use the most likely amount method to determine the variable consideration. We believe there will be no significant changes to our estimates of variable consideration when any related uncertainties are resolved with our customers. We review and update our estimates and related accruals of variable consideration each period based on historical experience. Our recorded liability for allowances, end-user pricing adjustments and trade spending was $
Warranties & Returns
We provide all customers with a standard or assurance type warranty. Either stated or implied, we provide assurance the related products will comply with all agreed-upon specifications and other warranties provided under the law. No services beyond an assurance warranty are provided to our customers.
We do not grant a general right of return. However, customers may return defective or non-conforming products. Customer remedies may include either a cash refund or an exchange of the product. We do not estimate a right of return and related refund liability as returns of our products are rare.
Contract Balances
Our customers are billed for service contracts in advance of performance and therefore we have contract liabilities on our balance sheet as follows:
| (in thousands) |
||||||||||||||||
| Three Months Ended |
Six Months Ended |
|||||||||||||||
| March 26, |
March 27, |
March 26, |
March 27, |
|||||||||||||
| 2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Beginning Balance |
$ | $ | $ | $ | ||||||||||||
| Additions to contract liability |
||||||||||||||||
| Amounts recognized as revenue |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Ending Balance |
$ | $ | $ | $ | ||||||||||||
Disaggregation of Revenue
See Note 9 for disaggregation of our net sales by class of similar product and type of customer.
Allowance for Doubtful Receivables
We provide an allowance for doubtful receivables after taking into consideration historical experience and other factors. On September 27, 2020, the Company adopted guidance issued by the FASB in ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which requires companies to recognize an allowance that reflects a current estimate of credit losses expected to be incurred over the life of the asset. Adoption of this new guidance did not have a material impact on the consolidated financial statements. The Company continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses. The allowance for doubtful accounts considers a number of factors including the age of receivable balances, the history of losses, expectations of future credit losses and the customers’ ability to pay off obligations. The allowance for doubtful receivables was $
| Note 3 |
Depreciation of equipment and buildings is provided for by the straight-line method over the assets’ estimated useful lives. Amortization of improvements is provided for by the straight-line method over the term of the lease or the assets’ estimated useful lives, whichever is shorter. Licenses and rights, customer relationships and non-compete agreements arising from acquisitions are amortized by the straight-line method over periods ranging from |
| Note 4 |
Basic earnings per common share (EPS) excludes dilution and is computed by dividing income available to common shareholders by the weighted average common shares outstanding during the period. Diluted EPS takes into consideration the potential dilution that could occur if securities (stock options) or other contracts to issue common stock were exercised and converted into common stock. Our calculation of EPS is as follows: |
| Three Months Ended March 26, 2022 |
||||||||||||
| Income |
Shares |
Per Share |
||||||||||
| (Numerator) |
(Denominator) |
Amount |
||||||||||
| (in thousands, except per share amounts) |
||||||||||||
| Basic EPS |
||||||||||||
| Net earnings available to common stockholders |
$ | $ | ||||||||||
| Effect of dilutive securities |
||||||||||||
| Options |
||||||||||||
| Diluted EPS |
||||||||||||
| Net earnings available to common stockholders plus assumed conversions |
$ | $ | ||||||||||
| |
| Six Months ended March 26, 2022 |
||||||||||||
| Income |
Shares |
Per Share |
||||||||||
| (Numerator) |
(Denominator) |
Amount |
||||||||||
| (in thousands, except per share amounts) |
||||||||||||
| Basic EPS |
||||||||||||
| Net earnings available to common stockholders |
$ | $ | ||||||||||
| Effect of dilutive securities |
||||||||||||
| Options |
||||||||||||
| Diluted EPS |
||||||||||||
| Net earnings available to common stockholders plus assumed conversions |
$ | $ | ||||||||||
| |
| Three Months Ended March 27, 2021 |
||||||||||||
| Income |
Shares |
Per Share |
||||||||||
| (Numerator) |
(Denominator) |
Amount |
||||||||||
| (in thousands, except per share amounts) |
||||||||||||
| Basic EPS |
||||||||||||
| Net earnings available to common stockholders |
$ | $ | ||||||||||
| Effect of dilutive securities |
||||||||||||
| Options |
||||||||||||
| Diluted EPS |
||||||||||||
| Net earnings available to common stockholders plus assumed conversions |
$ | $ | ||||||||||
| Six Months Ended March 27, 2021 |
||||||||||||
| Income |
Shares |
Per Share |
||||||||||
| (Numerator) |
(Denominator) |
Amount |
||||||||||
| (in thousands, except per share amounts) |
||||||||||||
| Basic EPS |
||||||||||||
| Net earnings available to common stockholders |
$ | $ | ||||||||||
| Effect of dilutive securities |
||||||||||||
| Options |
||||||||||||
| Diluted EPS |
||||||||||||
| Net earnings available to common stockholders plus assumed conversions |
$ | $ | ||||||||||
| |
| Note 5 | At March 26, 2022, the Company has three stock-based employee compensation plans. Share-based compensation expense was recognized as follows: |
| Three Months Ended | Six Months Ended | |||||||||||||||
| March 26, | March 27, | March 26, | March 27, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Stock options | $ | $ | $ | $ | ||||||||||||
| Stock purchase plan | ||||||||||||||||
| Stock issued to an outside director | ||||||||||||||||
| Restricted stock issued to an employee | ||||||||||||||||
| Performance stock issued to employees | ||||||||||||||||
| Total share-based compensation | $ | $ | $ | $ | ||||||||||||
| The above compensation is net of tax benefits | $ | $ | $ | $ | ||||||||||||
The fair value of each option grant is estimated on the date of grant using the Black-Scholes options-pricing model.
The Company did grant any stock options during the fiscal year 2022 six-month period.
During the fiscal year 2021 six-month period, the Company granted
In November 2021, the Company issued
In November 2021, the Company also issued
Expected volatility is based on the historical volatility of the price of our common shares over the past
| Note 6 | We account for our income taxes under the liability method. Under the liability method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates that will be in effect when these differences reverse. Deferred tax expense is the result of changes in deferred tax assets and liabilities. |
Additionally, we recognize a liability for income taxes and associated penalties and interest for tax positions taken or expected to be taken in a tax return which are more likely than not to be overturned by taxing authorities (“uncertain tax positions”). We have not recognized a tax benefit in our financial statements for these uncertain tax positions.
The total amount of gross unrecognized tax benefits is $
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 six months ended March 26, 2022 was
| Note 7 |
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which changes the impairment model used to measure credit losses for most financial assets. We are required to recognize an allowance that reflects the Company’s current estimate of credit losses expected to be incurred over the life of the financial asset, including trade receivables and held-to-maturity debt securities. |
The Company adopted this guidance in the first quarter of Fiscal 2021 using the modified retrospective transition method. The adoption of ASU 2016-13 did not have a material impact on the Company’s consolidated financial statements.
| Note 8 |
Inventories consist of the following: |
| March 26, |
September 25, |
|||||||
| 2022 |
2021 |
|||||||
| (unaudited) |
||||||||
| (in thousands) |
||||||||
| Finished goods |
$ | $ | ||||||
| Raw materials |
||||||||
| Packaging materials |
||||||||
| Equipment parts and other |
||||||||
| Total inventories |
$ | $ | ||||||
| Note 9 |
We principally sell our products to the food service and retail supermarket industries. Sales and results of our frozen beverages business are monitored separately from the balance of our food service business because of different distribution and capital requirements. We maintain separate and discrete financial information for the three operating segments mentioned above which is available to our Chief Operating Decision Maker. |
Our
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.
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, PHILLY SWIRL cups and sticks, ICEE Squeeze-Up Tubes and handheld products. Within the retail supermarket channel, our frozen and prepackaged products are purchased by the consumer for consumption at home.
Frozen Beverages
The Company markets frozen beverages primarily under the names ICEE, SLUSH PUPPIE and PARROT ICE which are sold primarily in the United States, Mexico and Canada. We also provide repair and maintenance service to customers for customers’ owned equipment.
The Chief Operating Decision Maker for Food Service, Retail Supermarkets and Frozen Beverages reviews monthly detailed operating income statements and sales reports in order to assess performance and allocate resources to each individual segment. Sales and operating income are key variables monitored by the Chief Operating Decision Maker and management when determining each segment’s, and the Company’s, financial condition and operating performance. In addition, the Chief Operating Decision Maker reviews and evaluates depreciation, capital spending and assets of each segment on a quarterly basis to monitor cash flow and asset needs of each segment. Information regarding the operations in these three reportable segments is as follows:
| Three Months Ended |
Six Months Ended |
|||||||||||||||
| March 26, |
March 27, |
March 26, |
March 27, |
|||||||||||||
| 2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Sales to external customers: |
||||||||||||||||
| Food Service |
||||||||||||||||
| Soft pretzels |
$ | $ | $ | $ | ||||||||||||
| Frozen novelties |
||||||||||||||||
| Churros |
||||||||||||||||
| Handhelds |
||||||||||||||||
| Bakery |
||||||||||||||||
| Other |
||||||||||||||||
| Total Food Service |
$ | $ | $ | $ | ||||||||||||
| Retail Supermarket |
||||||||||||||||
| Soft pretzels |
$ | $ | $ | $ | ||||||||||||
| Frozen novelties |
||||||||||||||||
| Biscuits |
||||||||||||||||
| Handhelds |
||||||||||||||||
| Coupon redemption |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other |
||||||||||||||||
| Total Retail Supermarket |
$ | $ | $ | $ | ||||||||||||
| Frozen Beverages |
||||||||||||||||
| Beverages |
$ | $ | $ | $ | ||||||||||||
| Repair and maintenance service |
||||||||||||||||
| Machines revenue |
||||||||||||||||
| Other |
||||||||||||||||
| Total Frozen Beverages |
$ | $ | $ | $ | ||||||||||||
| Consolidated sales |
$ | $ | $ | $ | ||||||||||||
| Depreciation and amortization: |
||||||||||||||||
| Food Service |
$ | $ | $ | $ | ||||||||||||
| Retail Supermarket |
||||||||||||||||
| Frozen Beverages |
||||||||||||||||
| Total depreciation and amortization |
$ | $ | $ | $ | ||||||||||||
| Operating income: |
||||||||||||||||
| Food Service |
$ | $ | $ | $ | ||||||||||||
| Retail Supermarket |
||||||||||||||||
| Frozen Beverages |
( |
) | ( |
) | ||||||||||||
| Total operating income |
$ | $ | $ | $ | ||||||||||||
| Capital expenditures: |
||||||||||||||||
| Food Service |
$ | $ | $ | $ | ||||||||||||
| Retail Supermarket |
||||||||||||||||
| Frozen Beverages |
||||||||||||||||
| Total capital expenditures |
$ | $ | $ | $ | ||||||||||||
| Assets: |
||||||||||||||||
| Food Service |
$ | $ | $ | $ | ||||||||||||
| Retail Supermarket |
||||||||||||||||
| Frozen Beverages |
||||||||||||||||
| Total assets |
$ | $ | $ | $ | ||||||||||||
| Note 10 |
Our |
The carrying amounts of acquired intangible assets for the Food Service, Retail Supermarkets and Frozen Beverage segments as of March 26, 2022 and September 25, 2021 are as follows:
| March 26, 2022 |
September 25, 2021 |
|||||||||||||||
| Gross |
Gross |
|||||||||||||||
| Carrying |
Accumulated |
Carrying |
Accumulated |
|||||||||||||
| Amount |
Amortization |
Amount |
Amortization |
|||||||||||||
| (in thousands) |
||||||||||||||||
| FOOD SERVICE |
||||||||||||||||
| Indefinite lived intangible assets |
||||||||||||||||
| Trade names |
$ | $ | $ | $ | ||||||||||||
| Amortized intangible assets |
||||||||||||||||
| Non compete agreements |
||||||||||||||||
| Customer relationships |
||||||||||||||||
| License and rights |
||||||||||||||||
| TOTAL FOOD SERVICE |
$ | $ | $ | $ | ||||||||||||
| RETAIL SUPERMARKETS |
||||||||||||||||
| Indefinite lived intangible assets |
||||||||||||||||
| Trade names |
$ | $ | $ | $ | ||||||||||||
| Amortized intangible Assets |
||||||||||||||||
| Trade names |
||||||||||||||||
| Customer relationships |
||||||||||||||||
| TOTAL RETAIL SUPERMARKETS |
$ | $ | $ | $ | ||||||||||||
| FROZEN BEVERAGES |
||||||||||||||||
| Indefinite lived intangible assets |
||||||||||||||||
| Trade names |
$ | $ | - | $ | $ | - | ||||||||||
| Distribution rights |
- | - | ||||||||||||||
| Amortized intangible assets |
||||||||||||||||
| Customer relationships |
||||||||||||||||
| Licenses and rights |
||||||||||||||||
| TOTAL FROZEN BEVERAGES |
$ | $ | $ | $ | ||||||||||||
| CONSOLIDATED |
$ | $ | $ | $ | ||||||||||||
Amortizing intangible assets are being amortized by the straight-line method over periods ranging from
Estimated amortization expense for the next five fiscal years is approximately $
The weighted amortization period of the intangible assets, in total, is
Goodwill
The carrying amounts of goodwill for the Food Service, Retail Supermarket and Frozen Beverage segments are as follows:
| Food |
Retail |
Frozen |
|
|||||||||||||
| Service |
Supermarket |
Beverages |
Total | |||||||||||||
| (in thousands) |
||||||||||||||||
| Balance at March 26, 2022 |
$ | $ | $ | $ | ||||||||||||
| Balance at September 25, 2021 |
$ | $ | $ | $ | ||||||||||||
| Note 11 |
We have classified our investment securities as marketable securities held to maturity and available for sale. The FASB defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the FASB has established three levels of inputs that may be used to measure fair value: |
| Level 1 |
Observable input such as quoted prices in active markets for identical assets or liabilities; |
| Level 2 |
Observable inputs, other than Level 1 inputs in active markets, that are observable either directly or indirectly; and |
| Level 3 |
Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions. |
Marketable securities held to maturity and available for sale consist primarily of investments in mutual funds, preferred stock, and corporate bonds. The fair values of mutual funds are based on quoted market prices in active markets and are classified within Level 1 of the fair value hierarchy. The fair values of preferred stock and corporate bonds are based on quoted prices for identical or similar instruments in markets that are not active. As a result, preferred stock and corporate bonds are classified within Level 2 of the fair value hierarchy.
The amortized cost, unrealized gains and losses, and fair market values of our investment securities held to maturity at March 26, 2022 are summarized as follows:
| Gross |
Gross |
Fair |
||||||||||||||
| Amortized |
Unrealized |
Unrealized |
Market |
|||||||||||||
| Cost |
Gains |
Losses |
Value |
|||||||||||||
| (in thousands) |
||||||||||||||||
| Corporate bonds |
$ | $ | $ | $ | ||||||||||||
| Total marketable securities held to maturity |
$ | $ | $ | $ | ||||||||||||
The amortized cost, unrealized gains and losses, and fair market values of our investment securities available for sale at March 26, 2022 are summarized as follows:
| Gross |
Gross |
Fair |
||||||||||||||
| Amortized |
Unrealized |
Unrealized |
Market |
|||||||||||||
| Cost |
Gains |
Losses |
Value |
|||||||||||||
| (in thousands) |
||||||||||||||||
| Mutual funds |
$ | $ | $ | $ | ||||||||||||
| Preferred stock |
||||||||||||||||
| Total marketable securities available for sale |
$ | $ | $ | $ | ||||||||||||
The mutual funds seek current income with an emphasis on maintaining low volatility and overall moderate duration. The Fixed-to-Floating Perpetual Preferred Stock generate fixed income to call dates in 2025 and then income is based on a spread above LIBOR if the securities are not called. The mutual funds and Fixed-to-Floating Perpetual Preferred Stock do not have contractual maturities; however, we classify them as long-term assets as it is our intent to hold them for a period of over one year, although we may sell some or all of them depending on presently unanticipated needs for liquidity or market conditions. The corporate bonds generate fixed income to maturity dates in 2022 through 2023, with $
The amortized cost, unrealized gains and losses, and fair market values of our investment securities held to maturity at September 25, 2021 are summarized as follows:
| Gross |
Gross |
Fair |
||||||||||||||
| Amortized |
Unrealized |
Unrealized |
Market |
|||||||||||||
| Cost |
Gains |
Losses |
Value |
|||||||||||||
| (in thousands) |
||||||||||||||||
| Corporate bonds |
||||||||||||||||
| Total marketable securities held to maturity |
$ | $ | $ | $ | ||||||||||||
The amortized cost, unrealized gains and losses, and fair market values of our investment securities available for sale at September 25, 2021 are summarized as follows:
| Gross |
Gross |
Fair |
||||||||||||||
| Amortized |
Unrealized |
Unrealized |
Market |
|||||||||||||
| Cost |
Gains |
Losses |
Value |
|||||||||||||
| (in thousands) | ||||||||||||||||
| Mutual funds |
$ | $ | $ | $ | ||||||||||||
| Preferred stock |
||||||||||||||||
| Total marketable securities available for sale |
$ | $ | $ | $ | ||||||||||||
The amortized cost and fair value of the Company’s held to maturity securities by contractual maturity at March 26, 2022 and September 25, 2021 are summarized as follows:
| March 26, 2022 |
September 25, 2021 |
|||||||||||||||
| Fair |
Fair |
|||||||||||||||
| Amortized |
Market |
Amortized |
Market |
|||||||||||||
| Cost |
Value |
Cost |
Value |
|||||||||||||
| (in thousands) | ||||||||||||||||
| Due in one year or less |
$ | $ | $ | $ | ||||||||||||
| Due after one year through five years |
- | - | ||||||||||||||
| Total held to maturity securities |
$ | $ | $ | $ | ||||||||||||
| Less current portion |
||||||||||||||||
| Long term held to maturity securities |
$ | - | $ | - | $ | $ | ||||||||||
Proceeds from the redemption and sale of marketable securities were $
Total marketable securities held to maturity as of March 26, 2022, with credit ratings of BBB/BB/B had an amortized cost basis totaling $
| Note 12 |
Changes to the components of accumulated other comprehensive loss are as follows: |
| Three Months Ended |
Six Months Ended |
|||||||
| March 26, 2022 |
March 26, 2022 |
|||||||
| Foreign Currency |
Foreign Currency |
|||||||
| Translation |
Translation |
|||||||
| Adjustments |
Adjustments |
|||||||
| (unaudited) (in thousands) |
(unaudited) (in thousands) |
|||||||
| Beginning balance |
$ | ( |
) | $ | ( |
) | ||
| Other comprehensive income |
||||||||
| Ending balance |
$ | ( |
) | $ | ( |
) | ||
| Three Months Ended |
Six Months Ended |
|||||||
| March 27, 2021 |
March 27, 2021 |
|||||||
| Foreign Currency |
Foreign Currency |
|||||||
| Translation |
Translation |
|||||||
| Adjustments |
Adjustments |
|||||||
| (unaudited) (in thousands) |
(unaudited) (in thousands) |
|||||||
| Beginning balance |
$ | ( |
) | $ | ( |
) | ||
| Other comprehensive (loss) income |
( |
) | ||||||
| Ending balance |
$ | ( |
) | $ | ( |
) | ||
Note 13 – Leases
General Lease Description
We have operating leases with initial noncancelable lease terms in excess of one year covering the rental of various facilities and equipment. Certain of these leases contain renewal options and some provide options to purchase during the lease term. Our operating leases include leases for real estate for some of our office and manufacturing facilities as well as manufacturing and non-manufacturing equipment used in our business. The remaining lease terms for these operating leases range from
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
Significant Assumptions and Judgments
Contract Contains a Lease
In evaluating our contracts to determine whether a contract is or contains a lease, we considered the following:
| • |
Whether explicitly or implicitly identified assets have been deployed in the contract; and |
| • |
Whether we obtain substantially all of the economic benefits from the use of that underlying asset, and we can direct how and for what purpose the asset is used during the term of the contract. |
Allocation of Consideration
In determining how to allocate consideration between lease and non-lease components in a contract that was deemed to contain a lease, we used judgment and consistent application of assumptions to reasonably allocate the consideration.
Options to Extend or Terminate Leases
We have leases which contain options to extend or terminate the leases. On a lease-by-lease basis, we have determined if the extension should be considered reasonably certain to be exercised and thus a right-of-use asset and a lease liability should be recorded.
Discount Rate
The discount rate for leases, if not explicitly stated in the lease, is the incremental borrowing rate, which is the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.
We used the discount rate to calculate the present value of the lease liability at the date of adoption. In the development of the discount rate, we considered our incremental borrowing rate as provided by our lender which was based on cash collateral and credit risk specific to us, and our lease portfolio characteristics.
As of March 26, 2022, the weighted-average discount rate of our operating and finance leases was
Practical Expedients and Accounting Policy Elections
We elected the package of practical expedients that permits us not to reassess our prior conclusions about lease identification, lease classification and initial direct costs and made an accounting policy election to exclude short-term leases with an initial term of 12 months or less from our Consolidated Balance Sheets.
Amounts Recognized in the Financial Statements
The components of lease expense were as follows:
| Three Months Ended |
Three Months Ended |
Six Months Ended |
Six Months Ended |
|||||||||||||
| March 26, 2022 |
March 27, 2021 |
March 26, 2022 |
March 27, 2021 |
|||||||||||||
| (in thousands) |
(in thousands) |
(in thousands) |
(in thousands) |
|||||||||||||
| Operating lease cost in cost of goods sold and operating expenses |
$ | $ | $ | $ | ||||||||||||
| Finance lease cost: |
||||||||||||||||
| Amortization of assets in cost of goods sold and operating expenses |
||||||||||||||||
| Interest on lease liabilities in Interest expense & other |
||||||||||||||||
| Total finance lease cost |
$ | $ | $ | $ | ||||||||||||
| Short-term lease cost in cost of goods sold and operating expenses |
||||||||||||||||
| Total net lease cost |
$ | $ | $ | $ | ||||||||||||
| Supplemental balance sheet information related to leases is as follows: |
| March 26, 2022 |
September 25, 2021 |
|||||||
| (in thousands) |
(in thousands) |
|||||||
| Operating Leases |
||||||||
| Operating lease right-of-use assets |
$ | $ | ||||||
| Current operating lease liabilities |
$ | $ | ||||||
| Noncurrent operating lease liabilities |
||||||||
| Total operating lease liabilities |
$ | $ | ||||||
| Finance Leases |
||||||||
| Finance lease right-of-use assets in property, plant and equipment, net |
$ | $ | ||||||
| Current finance lease liabilities |
$ | $ | ||||||
| Noncurrent finance lease liabilities |
||||||||
| Total finance lease liabilities |
$ | $ | ||||||
| Supplemental cash flow information related to leases is as follows: |
| Three Months Ended |
Three Months Ended |
Six Months Ended |
Six Months Ended |
|||||||||||||
| March 26, 2022 |
March 27, 2021 |
March 26, 2022 |
March 27, 2021 |
|||||||||||||
| (in thousands) |
(in thousands) |
(in thousands) |
(in thousands) |
|||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: |
||||||||||||||||
| Operating cash flows from operating leases |
$ | $ | $ | $ | ||||||||||||
| Operating cash flows from finance leases |
$ | $ | $ | $ | ||||||||||||
| Financing cash flows from finance leases |
$ | $ | $ | $ | ||||||||||||
| Supplemental noncash information on lease liabilities arising from obtaining right-of-use assets |
$ | $ | $ | $ | ||||||||||||
| Supplemental noncash information on lease liabilities removed due to purchase of leased asset |
$ | - | $ | - | $ | - | $ | - | ||||||||
| As of March 26, 2022, the maturities of lease liabilities were as follows: |
| (in thousands) |
||||||||
| Operating Leases |
Finance Leases |
|||||||
| Six months ending September 24, 2022 |
$ | $ | ||||||
| 2023 |
||||||||
| 2024 |
||||||||
| 2025 |
||||||||
| 2026 |
||||||||
| Thereafter |
||||||||
| Total minimum payments |
$ | $ | ||||||
| Less amount representing interest |
( |
) | ( |
) | ||||
| Present value of lease obligations |
$ | $ | ||||||
| Note 14 |
We have related party expenses for distribution and shipping related costs with NFI Industries, Inc. Our director, Sidney R. Brown, is CEO of NFI Industries, Inc. The Company paid $ |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Statements made in this Form 10-Q that are not historical or current facts are “forward-looking statements” made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 (the “Act”) and Section 21E of the Securities Exchange Act of 1934 “the “Exchange Act”. These statements often can be identified by the use of terms such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” “approximate,” “intend” or “continue,” or the negative thereof. We intend that such forward-looking statements be subject to the safe harbors of the Act and the Exchange Act. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management’s best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties, assumptions, and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.
Liquidity and Capital Resources
Our current cash and cash equivalents balances, investments and cash expected to be provided by future operations are our primary sources of liquidity. We believe that these sources, along with our borrowing capacity, are sufficient to fund future growth and expansion. See Note 11 to these financial statements for a discussion of our investment securities.
The Company’s Board of Directors declared a regular quarterly cash dividend of $0.633 per share of its common stock payable on April 12, 2022, to shareholders of record as of the close of business on March 22, 2022.
On August 4, 2017 the Company’s Board of Directors authorized the purchase and retirement of 500,000 shares of the Company’s common stock; 318,858 shares remain to be purchased under this authorization. We did not purchase any shares of our common stock in the six months ended March 26, 2022, nor did we purchase any shares of our common stock in fiscal year 2021.
In the three months ended March 26, 2022 and March 27, 2021, fluctuations in the valuation of the Mexican and Canadian currencies and the resulting translation of the net assets of our Mexican and Canadian subsidiaries caused a decrease of $546,000 and an increase of $531,000 in accumulated other comprehensive loss, respectively. In the six months ended March 26, 2022 and March 27, 2021, fluctuations in the valuation of the Mexican and Canadian currencies and the resulting translation of the net assets of our Mexican and Canadian subsidiaries caused a decrease of $102,000 and $1,748,000 in accumulated other comprehensive loss, respectively.
In December 2021, we entered into an amendment and modification to an amended and restated loan agreement with our existing banks which provides for up to a $50,000,000 revolving credit facility repayable in December 2026. The agreement contains restrictive covenants and requires commitment fees in accordance with standard banking practice. There were no outstanding balances under this facility at March 26, 2022 or at September 25, 2021.
Critical Accounting Policies, Judgments and Estimates
There have been no material changes to our critical accounting policies, judgments and estimates from the information provided in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies, Judgments and Estimates, in our Annual Report on Form 10-K for the year ended September 25, 2021, as filed with the SEC on November 23, 2021.
RESULTS OF OPERATIONS
Net sales increased by 10% to $281,513,000 in the second quarter and by 21% to $600,003,000 for the six months ended March 26, 2022 compared to the three and six months ended March 27, 2021, respectively. Net sales in our fiscal second quarter were negatively impacted by unexpected challenges related to our early February implementation of a new enterprise resource planning (“ERP”) system. We experienced operational and supply chain challenges due to this implementation and estimated that these issues resulted in a negative, one-time impact, on fiscal second quarter sales of approximately $20 million, all within our Food Service and Retail segments.
FOOD SERVICE
Sales to food service customers increased by 4% in the second quarter to $176,340,000 and by 18% to $388,072,000 for the six months, compared to respective prior year periods. Sales were up across most product lines as many of the venues and locations where our products are sold that were previously shut down or operating at reduced capacity in the first and second quarters of 2021 have partially or fully re-opened in the first and second quarters of 2022. Customer venues including theaters, stadiums, amusement parks, schools, restaurants and strategic accounts continued to experience an increase in foot traffic and visitation, which helped drive strong sales in our core products.
Soft pretzel sales to the food service market increased by 18% to $43,261,000 in the second quarter and by 35% to $93,682,000 in the six months compared to respective prior year periods. Frozen novelties sales decreased by 31% to $7,305,000 in the second quarter and decreased by 7% to $15,762,000 in the six months compared to respective prior year periods. Churro sales to food service customers increased by 19% to 17,447,000 in the second quarter and increased by 41% to $36,936,000 in the six months compared to respective prior year periods. Sales of bakery products increased by 1% in the second quarter to $83,967,000 and increased 12% to $191,798,000 for the six months compared to respective prior year periods. Sales of handhelds increased 3% in the second quarter to $20,506,000 and by 4% to $39,001,000 in the six months compared to respective prior year periods.
Sales of new products in the first twelve months since their introduction were approximately $2,000,000 in the second quarter and $4,000,000 in the six months, driven primarily by new bakery items, including a new empanada product with a major convenience customer. Price increases had a marginal impact on sales in the quarter and were somewhat offset by the volume decreases attributable to the negative impacts associated with the ERP implementation.
Compared to prior year, operating income in our Food Service segment decreased by 91% to $536,000 in the second quarter and by 22% to $9,537,000 in the six months reflecting the significant increase in ingredients, production and shipping costs as well as the impacts related to our ERP implementation.
RETAIL SUPERMARKETS
Compared to prior year, sales of products to retail supermarkets decreased by 7% to $40,757,000 in the second quarter and increased by 1% to $83,452,000 in the six months. Our SUPERPRETZEL brand has performed well helping to drive an 8% increase in sales of soft pretzels in the six months to $31,946,000 despite sales in the second quarter remaining relatively flat due to the impacts related to our ERP implementation. Sales of frozen novelties decreased by 2% to $18,919,000 in the second quarter, but increased by 6% to $36,721,000 in the six months compared to respective prior year periods. Sales of biscuits decreased by 12% to $5,687,000 in the second quarter and by 1% to $13,958,000 in the six months compared to respective prior year periods. Handheld sales to retail supermarket customers decreased by 52% to $1,069,000 in the second quarter and by 53% to $2,345,000 in the six months compared to respective prior year periods.
Sales of new products were approximately $500,000 for the three and six months ended, and were primarily related to frozen novelty items. Price increases had a minimal impact on sales in the second quarter and in the six months, and this increase was more than offset by the volume decreases attributable to the negative impacts associated with the ERP implementation.
Compared to prior year periods, operating income in our Retail Supermarkets segment decreased by 83% to $1,091,000 in the second quarter and by 45% to $6,075,000 in the six months. The decreases in operating income were primarily attributable to higher cost of goods sold as well as the impacts related to our ERP implementation.
FROZEN BEVERAGES
Compared to prior year periods, frozen beverage and related product sales increased by 50% to $64,416,000 in the second quarter and by 52% to $128,479,000 in the six months. Beverage related sales increased by 91% to $35,365,000 in the second quarter and by 101% to $69,128,000 in the six months compared to respective prior year periods. Gallon sales were up 88% in the quarter and up 98% in the six months compared to respective prior year periods. The increase in gallon sales reflects the growing momentum across theaters, amusement parks, convenience, and restaurant channels. In the amusement parks channel, we continue to see strong growth as visitation numbers continue to exceed pre-Covid levels. Service revenue increased by 15% to $21,000,000 in the second quarter and by 16% to $43,011,000 in the six months, compared to respective prior year periods, led by an acceleration in maintenance calls and additional growth in one of our larger customers. Machines revenue (primarily sales of frozen beverage machines) increased by 33% to $7,542,000 in the second quarter and by 27% to $15,389,000 in the six months, compared to respective prior year periods, driven mainly by growth from large quick service restaurant (QSR) and convenience customers.
Our Frozen Beverage segment had operating income of $2,461,000 in the second quarter compared with an operating loss of $5,189,000 in the prior year second quarter. In the six months, our Frozen Beverage segment had operating income of $3,321,000 compared with an operating loss of $15,514,000 in the prior year six-month period. The comparative performance was primarily a result of higher beverage sales volume which drove leverage across the business.
CONSOLIDATED
Gross profit as a percentage of sales was 23.2% in the three-month period this year and 23.8% last year. Gross profit as a percentage of sales was 24.1% in the six-month period this year and 22.3% last year. Inflation continued to build over the quarter and six-month period which has significantly pressured margins. The impact was especially pronounced in key raw material purchases like flour, eggs, dairy, chocolates and meats, as well as packaging and fuel. We have pricing and cost initiatives in place to offset these cost pressures, though we do not expect to see most of the benefits on gross profit until later in the fiscal year.
Total operating expenses increased by 14% to $61,260,000 in the second quarter and by 22% to $125,790,000 in the six months compared to respective prior year periods. As a percentage of net sales, operating expenses increased from 20.9% to 21.8% in the second quarter and from 20.8% to 21.0% in the six months.
Marketing expenses remained flat at 7.5% of net sales in the second quarter and decreased to 7.0% in the six months compared with 7.3% in prior year’s six-month period. Distribution expenses increased to 10.1% of net sales in the second quarter from 9.9% in the prior year and to 10.3% in the six months compared with 9.7% in prior year’s six-month period. Administrative expenses increased to 4.2% of net sales in the second quarter from 3.6% in prior year but decreased to 3.7% in the six months compared with 3.8% in prior year’s six-month period.
Compared to prior year, operating income decreased by 43% to $4,088,000 in the second quarter but increased by 142% to $18,933,000 in the six months as a result of the aforementioned items.
Our investments generated before tax income of $160,000 in the second quarter, a $419,000 decrease over prior year. In the six months, our investments generated before tax income of $431,000, a 78% decrease from the prior year period. The decrease in before tax investment income compared with prior year was primarily due to decreases in the amount of investments.
Compared to prior year, net earnings decreased by 46% to $3,271,000 in the second quarter but increased by 83% to $14,362,000 in the six months. Our effective tax rate was 26% in the six months compared with 20% in the prior year’s six- month period, as prior year’s six-month period effective tax rate was favorably impacted by tax benefits related to share-based compensation. Our effective tax rate was 22% in the second quarter and was also 22% in the prior year second quarter, as both were favorably impacted by the tax benefits related to share-based compensation.
There are many factors which can impact our net earnings from year to year and in the long run, among which are the supply and cost of raw materials and labor, insurance costs, factors impacting sales as noted above, the continuing consolidation of our customers, our ability to manage our manufacturing, marketing and distribution activities, our ability to make and integrate acquisitions and changes in tax laws and interest rates.
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
There has been no material change in the Company’s assessment of its sensitivity to market risk since its presentation set forth, in item 7a. “Quantitative and Qualitative Disclosures About Market Risk,” in its 2021 annual report on Form 10-K filed with the SEC.
| Item 4. |
Controls and Procedures |
The Chief Executive Officer and the Chief Financial Officer of the Company (its principal executive officer and principal financial officer, respectively) have concluded, based on their evaluation as of March 26, 2022, that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
There has been no change in the Company’s internal control over financial reporting during the quarter ended March 26, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
| Item 6. |
Exhibits |
Exhibit No.
| 31.1 |
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 31.2 |
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 32.1 |
| 32.2 |
| 101.1 |
The following financial information from J&J Snack Foods Corp.'s Quarterly Report on Form 10-Q for the quarter ended March 26, 2022, formatted in inline XBRL (extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Earnings, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Cash Flows and (v) the Notes to the Consolidated Financial Statements |
|
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and containing in Exhibit 101) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
J & J SNACK FOODS CORP.
| Dated: May 5, 2022 |
/s/ Dan Fachner |
||
| Dan Fachner |
|||
| President and Chief Executive Officer |
|||
| (Principal Executive Officer) |
| Dated: May 5, 2022 |
/s/ Ken A. Plunk |
||
| Ken A. Plunk, Senior Vice |
|||
| President and Chief Financial Officer |
|||
| (Principal Financial Officer) |
|||
| (Principal Accounting Officer) |
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Dan Fachner, certify that:
1. I have reviewed this report on Form 10-Q of J & J Snack Foods Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls and procedures for financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal controls and procedures for financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the
registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s first fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
Date: May 5, 2022
/s/ Dan Fachner
Dan Fachner
President and Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Ken A. Plunk, certify that:
1. I have reviewed this report on Form 10-Q of J & J Snack Foods Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls and procedures for financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal controls and procedures for financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s first fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.
Date: May 5, 2022
/s/ Ken A. Plunk
Ken A. Plunk, Senior Vice
President and Chief Financial Officer
(Principal Financial Officer)
(Principal Accounting Officer)
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code), each of the undersigned officers of J & J Snack Foods Corp. (the “Company”), does hereby certify with respect to the Quarterly Report of the Company on Form 10-Q for the quarter ended March 26, 2022 (the “Report”) that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: May 5, 2022
/s/ Dan Fachner
Dan Fachner
President and Chief Executive Officer
(Principal Executive Officer)
The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code) and is not being filed as part of the Report or as a separate disclosure document.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code), each of the undersigned officers of J & J Snack Foods Corp. (the “Company”), does hereby certify with respect to the Quarterly Report of the Company on Form 10-Q for the quarter ended March 26, 2022 (the “Report”) that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: May 5, 2022
/s/ Ken A. Plunk
Ken A. Plunk, Senior Vice
President and Chief Financial Officer
(Principal Financial Officer)
(Principal Accounting Officer)
The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code) and is not being filed as part of the Report or as a separate disclosure document.