10-Q 1 jjsf20150331_10q.htm FORM 10-Q jjsf20150331_10q.htm

 

UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

X

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

 

For the period ended March 28, 2015

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, NJ 08109

(Address of principal executive offices)

 

Telephone (856) 665-9533

 

 

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.

 

X

Yes

 

No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

 

X

Yes

 

No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated filer (X)

Accelerated filer (  )

 

 

Non-accelerated filer (  )

Smaller reporting company (  )

(Do not check if a smaller reporting company)

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

 

Yes

X

No

 

As April 20, 2015 there were 18,691,274 shares of the Registrant’s Common Stock outstanding.

 

 
1

 

 

INDEX

 

  Page Number

Part I. Financial Information

 
   

Item l. Consolidated Financial Statements

 
   

Consolidated Balance Sheets – March 28, 2015 (unaudited) and September 27, 2014

3
   

Consolidated Statements of Earnings (unaudited) – Three and Six Months Ended March 28, 2015 and March 29, 2014

4

   

Consolidated Statements of Comprehensive Income (unaudited) – Three and Six Months Ended March 28, 2015 and March 29, 2014

5
   

Consolidated Statements of Cash Flows (unaudited) – Six Months Ended March 28, 2015 and March 29, 2014

6
   

Notes to the Consolidated Financial Statements (unaudited)

7
   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

20
   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

25
   

Item 4. Controls and Procedures

25
   

Part II. Other Information

 
   

Item 6. Exhibits

26

 

 
2

 

  

J & J SNACK FOODS CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

 

   

March 28,

   

September 27,

 
   

2015

   

2014

 
   

(unaudited)

         

Assets

               

Current assets

               

Cash and cash equivalents

  $ 88,615     $ 91,760  

Accounts receivable, net

    95,826       99,972  

Inventories, net

    87,043       76,083  

Prepaid expenses and other

    5,588       3,695  

Deferred income taxes

    4,236       4,096  

Total current assets

    281,308       275,606  
                 

Property, plant and equipment, at cost

               

Land

    2,496       2,496  

Buildings

    26,741       26,741  

Plant machinery and equipment

    201,801       195,566  

Marketing equipment

    261,437       256,389  

Transportation equipment

    6,875       6,913  

Office equipment

    19,564       18,556  

Improvements

    28,083       26,635  

Construction in progress

    5,640       4,785  

Total Property, plant and equipment, at cost

    552,637       538,081  

Less accumulated depreciation and amortization

    390,419       380,552  

Property, plant and equipment, net

    162,218       157,529  
                 

Other assets

               

Goodwill

    86,442       86,442  

Other intangible assets, net

    48,282       50,989  

Marketable securities held to maturity

    -       2,000  

Marketable securities available for sale

    127,754       128,117  

Other

    3,309       4,090  

Total other assets

    265,787       271,638  

Total Assets

  $ 709,313     $ 704,773  
                 

Liabilities and Stockholder's Equity

               

Current Liabilities

               

Current obligations under capital leases

  $ 273     $ 146  

Accounts payable

    55,216       59,968  

Accrued insurance liability

    11,318       10,578  

Accrued income taxes

    -       -  

Accrued liabilities

    5,471       5,007  

Accrued compensation expense

    11,164       14,286  

Dividends payable

    6,729       5,972  

Total current liabilities

    90,171       95,957  
                 

Long-term obligations under capital leases

    1,334       374  

Deferred income taxes

    44,915       44,785  

Other long-term liabilities

    1,037       1,139  
                 

Stockholders' Equity

               

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

    -       -  

Common stock, no par value; authorized, 50,000,000 shares; issued and outstanding 18,689,000 and 18,663,000 respectively

    33,777       32,621  

Accumulated other comprehensive loss

    (10,246 )     (5,988 )

Retained Earnings

    548,325       535,885  

Total stockholders' equity

    571,856       562,518  

Total Liabilities and Stockholder's Equity

  $ 709,313     $ 704,773  

 

The accompanying notes are an integral part of these statements.

 

 
3

 

 

J & J SNACK FOODS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

(in thousands, except per share amounts)

 

   

Three months ended

   

Six months ended

 
   

March 28,

   

March 29,

   

March 28,

   

March 29,

 
   

2015

   

2014

   

2015

   

2014

 
                                 

Net Sales

  $ 225,008     $ 205,321     $ 437,760     $ 408,844  
                                 

Cost of goods sold(1)

    158,058       144,208       309,709       287,825  

Gross Profit

    66,950       61,113       128,051       121,019  
                                 

Operating expenses

                               

Marketing (2)

    19,986       17,519       39,473       35,551  

Distribution (3)

    17,633       16,382       35,154       32,502  

Administrative (4)

    7,462       6,781       14,987       13,765  

Other general expense

    64       99       22       898  
      45,145       40,781       89,636       82,716  
                                 

Operating Income

    21,805       20,332       38,415       38,303  
                                 

Other income (expense)

                               

Investment income

    1,278       976       2,632       2,114  

Interest expense & other

    (30 )     (27 )     (54 )     (63 )
                                 

Earnings before income taxes

    23,053       21,281       40,993       40,354  
                                 

Income taxes

    8,416       7,760       15,100       14,407  
                                 

NET EARNINGS

  $ 14,637     $ 13,521     $ 25,893     $ 25,947  
                                 

Earnings per diluted share

  $ 0.78     $ 0.72     $ 1.38     $ 1.38  
                                 

Weighted average number of diluted shares

    18,821       18,819       18,811       18,806  
                                 

Earnings per basic share

  $ 0.78     $ 0.72     $ 1.39     $ 1.39  
                                 

Weighted average number of basic shares

    18,689       18,693       18,679       18,686  

 

(1)

Includes share-based compensation expense of $108 and $220 for the three months and six months ended March 28, 2015, respectively and $117 and $235 for the three months and six months ended March 29, 2014.

(2)

Includes share-based compensation expense of $158 and $330 for the three months and six months ended March 28,2015, respectively and $170 and $340 for the three months and six months ended March 29, 2014.

(3)

Includes share-based compensation expense of $10 and $21 for the three months and six months ended March 28, 2015, respectively and $11 and $21 for the three months and six months ended March 29, 2014.

(4)

Includes share-based compensation expense of $209 and $438 for the three months and six months ended March 28, 2015, respectively and $227 and $453 for the three months and six months ended March 29, 2014.

 

See accompanying notes to the consolidated financial statements

 

 
4

 

 

J&J SNACK FOODS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(in thousands)

 

   

Three months ended

   

Six months ended

 
   

March 28,

   

March 29,

   

March 28,

   

March 29,

 
   

2015

   

2014

   

2015

   

2014

 
                                 

Net Earnings

  $ 14,637     $ 13,521     $ 25,893     $ 25,947  
                                 

Foreign currency translation adjustments

    (914 )     (172 )     (2,869 )     (276 )

Unrealized holding gain(loss)on marketable securities

    533       956       (1,389 )     1,429  
                                 

Total Other Comprehensive Income, net of tax

    (381 )     784       (4,258 )     1,153  
                                 

Comprehensive Income

  $ 14,256     $ 14,305     $ 21,635     $ 27,100  

 

 

All amounts are net of tax.

 

 
5

 

 

J & J SNACK FOODS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (in thousands)

 

   

Six months ended

 
   

March 28,

   

March 29,

 
   

2015

   

2014

 

Operating activities:

               

Net earnings

  $ 25,893     $ 25,947  

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

               
Depreciation of fixed assets     15,987       15,591  

Amortization of intangibles and deferred costs

    2,869       2,511  

Share-based compensation

    1,009       1,049  

Deferred income taxes

    14       (189 )

Loss on sale of marketable securities

    509       296  

Other

    (199 )     (126 )

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

               

Decrease in accounts receivable

    3,885       636  

Increase in inventories

    (10,448 )     (5,106 )

Increase in prepaid expenses

    (1,918 )     (633 )

Decrease in accounts payable and accrued liabilities

    (6,373 )     (889 )

Net cash provided by operating activities

    31,228       39,087  

Investing activities:

               

Payment for purchases of companies, net of cash acquired

    -       (11,000 )

Purchases of property, plant and equipment

    (20,643 )     (20,825 )

Purchases of marketable securities

    (13,136 )     (25,747 )

Proceeds from redemption and sales of marketable securities

    13,601       6,060  

Proceeds from disposal of property and equipment

    862       815  

Other

    (56 )     (92 )

Net cash used in investing activities

    (19,372 )     (50,789 )

Financing activities:

               

Payments to repurchase common stock

    (2,114 )     -  

Proceeds from issuance of stock

    2,070       1,023  

Payments on capitalized lease obligations

    (105 )     (204 )

Payment of cash dividend

    (12,696 )     (8,966 )

Net cash used in financing activities

    (12,845 )     (8,147 )

Effect of exchange rate on cash and cash equivalents

    (2,156 )     (195 )

Net decrease in cash and cash equivalents

    (3,145 )     (20,044 )

Cash and cash equivalents at beginning of period

    91,760       97,345  

Cash and cash equivalents at end of period

  $ 88,615     $ 77,301  

 

See accompanying notes to the consolidated financial statements.

 

 
6

 

 

J & J SNACK FOODS CORP. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Note 1

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. Certain prior year amounts have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported net earnings.

 

The results of operations for the three and six months ended March 28, 2015 and March 29, 2014 are not necessarily indicative of results for the full year. Sales of our frozen beverages and frozen juice bars and ices are generally higher in our 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 consolidated financial statements and the notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 27, 2014.

 

Note 2

We recognize revenue from our products when the products are shipped to our customers. Repair and maintenance equipment service revenue is recorded when it is performed provided the customer terms are that the customer is to be charged on a time and material basis or on a straight-line basis over the term of the contract when the customer has signed a service contract. Revenue is recognized only where persuasive evidence of an arrangement exists, our price is fixed or estimable and collectability is reasonably assured. We record offsets to revenue for allowances, end-user pricing adjustments, trade spending, coupon redemption costs and returned product. Customers generally do not have the right to return product unless it is damaged or defective. We provide an allowance for doubtful receivables after taking into consideration historical experience and other factors. The allowance for doubtful receivables was $284,000 and $450,000 at March 28, 2015 and September 27, 2014, respectively.

 

Note 3

Depreciation of equipment and buildings is provided for by the straight-line method over the assets’ estimated useful lives. Amortization of improvements is provided for by the straight-line method over the term of the lease or the assets’ estimated useful lives, whichever is shorter. Licenses and rights, customer relationships and non-compete agreements arising from acquisitions are amortized by the straight-line method over periods ranging from 3 to 20 years. Depreciation expense was $8,006,000 and $7,903,000 for the three months ended March 28, 2015 and March 29, 2014, respectively, and for the six months ended March 28, 2015 and March 29, 2014 was $15,987,000 and $15,591,000 respectively.

 

 
7

 

  

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 28,2015

 
   

Income

   

Shares

   

Per Share

 
   

(Numerator)

   

(Denominator)

   

Amount

 
                         
   

(in thousands, except per share amounts)

 

Basic EPS

                       

Net Earnings available to common stockholders

  $ 14,637       18,689     $ 0.78  
                         

Effect of Dilutive Securities

                       

Options

    -       132       -  
                         

Diluted EPS

                       

Net Earnings available to common stockholders plus assumed conversions

  $ 14,637       18,821     $ 0.78  

 

 

   

Six Months Ended March 28, 2015

 
   

Income

   

Shares

   

Per Share

 
   

(Numerator)

   

(Denominator)

   

Amount

 
                         
   

(in thousands, except per share amounts)

 

Basic EPS

                       

Net Earnings available to common stockholders

  $ 25,893       18,679     $ 1.39  
                         

Effect of Dilutive Securities

                       

Options

    -       132       (0.01 )
                         

Diluted EPS

                       

Net Earnings available to common stockholders plus assumed conversions

  $ 25,893       18,811     $ 1.38  

 

 
8

 

 

   

Three Months Ended March 29, 2014

 
   

Income

   

Shares

   

Per Share

 
   

(Numerator)

   

(Denominator)

   

Amount

 
                         
   

(in thousands, except per share amounts)

 

Basic EPS

                       

Net Earnings available to common stockholders

  $ 13,521       18,693     $ 0.72  
                         

Effect of Dilutive Securities

                       

Options

    -       126       -  
                         

Diluted EPS

                       

Net Earnings available to common stockholders plus assumed conversions

  $ 13,521       18,819     $ 0.72  

 

   

Six Months Ended March 29, 2014

 
   

Income

   

Shares

   

Per Share

 
   

(Numerator)

   

(Denominator)

   

Amount

 
                         
   

(in thousands, except per share amounts)

 

Basic EPS

                       

Net Earnings available to common stockholders

  $ 25,947       18,686     $ 1.39  
                         

Effect of Dilutive Securities

                       

Options

    -       120       (0.01 )
                         

Diluted EPS

                       

Net Earnings available to common stockholders plus assumed conversions

  $ 25,947       18,806     $ 1.38  

 

 
9

 

 

Note 5

At March 28, 2015, the Company has three stock-based employee compensation plans. Share-based compensation was recognized as follows:

 

 

   

Three months ended

   

Six months ended

 
   

March 28,

   

March 29,

   

March 28,

   

March 29,

 
   

2015

   

2014

   

2015

   

2014

 
   

(in thousands, except per share amounts)

 
                                 

Stock Options

  $ 264     $ 388     $ 548     $ 700  

Stock purchase plan

    50       48       197       177  

Restricted stock issued to an employee

    2       4       3       8  
    $ 316     $ 440     $ 748     $ 885  
                                 

Per diluted share

  $ 0.02     $ 0.02     $ 0.04     $ 0.05  
                                 

The above compensation is net of tax benefits

  $ 169     $ 85     $ 261     $ 164  

 

 

The Company anticipates that share-based compensation will not exceed $1.9 million net of tax benefits, or approximately $.10 per share for the fiscal year ending September 26, 2015.

 

The fair value of each option grant is estimated on the date of grant using the Black-Scholes options-pricing model with the following weighted average assumptions used for grants in fiscal 2015 first six months: expected volatility of 17.8%; risk-free interest rate of 1.6%; dividend rate of 1.4% and expected lives of 5 years.

 

During the 2015 six month period, the Company granted 148,840 stock options. The weighted-average grant date fair value of these options was $15.23. During the 2014 six month period, the Company granted 98,975 stock options. The weighted-average grant date fair value of these options was $15.21.

 

Expected volatility is based on the historical volatility of the price of our common shares over the past 55 months for 5 year options and 10 years for 10 year options. We use historical information to estimate expected life and forfeitures within the valuation model. The expected term of awards represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Compensation cost is recognized using a straight-line method over the vesting or service period and is net of estimated forfeitures.

 

Note 6

We account for our income taxes under the liability method. Under the liability method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates that will be in effect when these differences reverse.  Deferred tax expense is the result of changes in deferred tax assets and liabilities.

 

 
10

 

 

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 $315,000 and $315,000 on March 28, 2015 and September 27, 2014, respectively, all of which would impact our effective tax rate over time, if recognized. We recognize interest and penalties related to income tax matters as a part of the provision for income taxes. As of March 28, 2015 and September 27, 2014, respectively, the Company has $180,000 and $180,000 of accrued interest and penalties.


In addition to our federal tax return and tax returns for Mexico and Canada, we file tax returns in all states that have a corporate income tax with virtually all open for examination for three to four years.

 

Note 7

In May 2014, the FASB issued guidance on revenue recognition which says that we should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration which we expect to be entitled in exchange for those goods or services.  This guidance is effective for our fiscal year ending September 2019.  Early application is not permitted.  We will assess the impact this guidance will have on our consolidated financial statements.

 

 

 

Note 8

Inventories consist of the following:

 

   

March 28,

   

September 27,

 
   

2015

   

2014

 
   

(unaudited)

         
   

(in thousands)

 
                 

Finished goods

  $ 38,926     $ 33,189  

Raw Materials

    18,085       15,632  

Packaging materials

    6,720       6,107  

Equipment parts & other

    23,312       21,155  
    $ 87,043     $ 76,083  
                 

The above inventories are net of reserves

  $ 2,621     $ 3,982  

 

Note 9

We principally sell our products to the food service and retail supermarket industries. Sales and results of our frozen beverages business are monitored separately from the balance of our food service business because of different distribution and capital requirements. We maintain separate and discrete financial information for the three operating segments mentioned above which is available to our Chief Operating Decision Makers.

 

 
11

 

 

Our three reportable segments are Food Service, Retail Supermarkets and Frozen Beverages. All inter-segment net sales and expenses have been eliminated in computing net sales and operating income (loss). These segments are described below

 

Food Service

 

The primary products sold by the food service group are soft pretzels, frozen juice treats and desserts, churros, dough enrobed handheld products and baked goods. Our customers in the food service industry include snack bars and food stands in chain, department and discount stores; malls and shopping centers; fast food outlets; stadiums and sports arenas; leisure 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 juice treats and desserts including LUIGI’S Real Italian Ice, MINUTE MAID Juice Bars and Soft Frozen Lemonade, WHOLE FRUIT frozen fruit bars and sorbet, PHILLY SWIRL cups and sticks, ICEE Squeeze-Up Tubes and dough enrobed handheld products including PATIO burritos. Within the retail supermarket channel, our frozen and prepackaged products are purchased by the consumer for consumption at home.

 

Frozen Beverages

 

We sell frozen beverages and related products to the food service industry primarily under the names ICEE, SLUSH PUPPIE and PARROT ICE in the United States, Mexico and Canada. We also provide repair and maintenance service to customers for customers’ owned equipment.

 

 
12

 

 

The Chief Operating Decision Maker for Food Service and Retail Supermarkets and the Chief Operating Decision Maker for Frozen Beverages monthly review detailed operating income statements and sales reports in order to assess performance and allocate resources to each individual segment. In addition, the Chief Operating Decision Makers review and evaluate depreciation, capital spending and assets of each segment on a quarterly basis to monitor cash flow and asset needs of each segment. Information regarding the operations in these three reportable segments is as follows:

 

   

Three months ended

   

Six months ended

 
   

March 28,

   

March 29,

   

March 28,

   

March 29,

 
   

2015

   

2014

   

2015

   

2014

 
   

(unaudited)

 
    (in thousands)  

Sales to External Customers:

                               

Food Service

                               

Soft pretzels

  $ 41,099     $ 38,815     $ 81,817     $ 78,123  

Frozen juices and ices

    11,072       11,857       19,273       20,086  

Churros

    14,622       13,430       27,589       27,381  

Handhelds

    5,044       5,712       10,202       12,116  

Bakery

    70,791       66,169       145,222       135,245  

Other

    2,634       2,346       4,720       4,158  
    $ 145,262     $ 138,329     $ 288,823     $ 277,109  
                                 

Retail Supermarket

                               

Soft pretzels

  $ 10,829     $ 10,309     $ 20,029     $ 19,224  

Frozen juices and ices

    13,722       8,402       22,877       14,825  

Handhelds

    4,569       4,815       9,448       10,102  

Coupon redemption

    (927 )     (689 )     (2,000 )     (1,369 )

Other

    340       213       566       432  
    $ 28,533     $ 23,050     $ 50,920     $ 43,214  
                                 

Frozen Beverages

                               

Beverages

  $ 28,778     $ 26,713     $ 54,288     $ 51,902  

Repair and maintenance service

    15,723       13,135       31,033       26,744  

Machines sales

    6,328       3,759       12,075       9,282  

Other

    384       335       621       593  
    $ 51,213     $ 43,942     $ 98,017     $ 88,521  
                                 

Consolidated Sales

  $ 225,008     $ 205,321     $ 437,760     $ 408,844  
                                 

Depreciation and Amortization:

                               

Food Service

  $ 5,388     $ 5,233     $ 10,641     $ 10,372  

Retail Supermarket

    187       8       440       16  

Frozen Beverages

    3,866       3,921       7,775       7,714  
    $ 9,441     $ 9,162     $ 18,856     $ 18,102  
                                 

Operating Income:

                               

Food Service

  $ 15,649     $ 17,562     $ 31,142     $ 32,713  

Retail Supermarket

    2,535       2,602       3,201       4,566  

Frozen Beverages

    3,621       168       4,072       1,024  
    $ 21,805     $ 20,332     $ 38,415     $ 38,303  
                                 

Capital Expenditures:

                               

Food Service

  $ 4,656     $ 4,991     $ 10,812     $ 10,839  

Retail Supermarket

    -       -       -       -  

Frozen Beverages

    5,132       6,517       9,831       9,986  
    9,788     $ 11,508     $ 20,643     $ 20,825  
                                 

Assets:

                               

Food Service

  $ 532,773     $ 505,745     $ 532,773     $ 505,745  

Retail Supermarket

    14,452       6,051       14,452       6,051  

Frozen Beverages

    162,088       154,198       162,088       154,198  
    $ 709,313     $ 665,994     $ 709,313     $ 665,994  

 

 
13

 

 

Note 10

Our three reporting units, which are also reportable segments, are Food Service, Retail Supermarkets and Frozen Beverages.

 

The carrying amounts of acquired intangible assets for the Food Service, Retail Supermarkets and Frozen Beverage segments as of March 28, 2015 and September 27, 2014 are as follows:

 

    March 28, 2015     September 27, 2014    
   

Gross

           

Gross

           
   

Carrying

   

Accumulated

   

Carrying

   

Accumulated

   
   

Amount

   

Amortization

   

Amount

   

Amortization

   
   

(in thousands)

   
                                   

FOOD SERVICE

                                 

Indefinite lived intangible assets

                                 

Trade Names

  $ 13,072     $ -     $ 13,072     $ -    
                                   

Amortized intangible assets

                                 

Non compete agreements

    592       525       592       509    

Customer relationships

    40,797       31,775       40,797       29,914    

License and rights

    3,606       2,755       3,606       2,708    

TOTAL FOOD SERVICE

  $ 58,067     $ 35,055     $ 58,067     $ 33,131    
                                   

RETAIL SUPERMARKETS

                                 
                                   

Indefinite lived intangible assets

                                 

Trade Names

  $ 7,206     $ -     $ 7,206     $ -    
                                   

Amortized Intangible Assets

                                 

Non compete agreements

    160       73       160       34    

Customer relationships

    7,979       820       7,979       420    

TOTAL RETAIL SUPERMARKETS

  $ 15,345     $ 893     $ 15,345     $ 454    
                                   
                                   

FROZEN BEVERAGES

                                 
                                   

Indefinite lived intangible assets

                                 

Trade Names

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

Amortized intangible assets

                                 

Non compete agreements

    198       198       198       198    

Customer relationships

    6,478       5,757       6,478       5,448    

Licenses and rights

    1,601       819       1,601       784    

TOTAL FROZEN BEVERAGES

  $ 17,592     $ 6,774     $ 17,592     $ 6,430    
                                   

CONSOLIDATED

  $ 91,004     $ 42,722     $ 91,004     $ 40,015    

 

 
14

 

 

 

 

Amortized intangible assets are being amortized by the straight-line method over periods ranging from 3 to 20 years and amortization expense is reflected throughout operating expenses. There were no intangible assets acquired in the three and six months ended March 28, 2015. Aggregate amortization expense of intangible assets for the three months ended March 28, 2015 and March 29, 2014 was $1,352,000 and $1,143,000, respectively and for the six months ended March 28, 2015 and March 29, 2014 was $2,707,000 and $2,286,000, respectively.

 

Estimated amortization expense for the next five fiscal years is approximately $5,400,000 in 2015 and $5,100,000 in 2016, $2,600,000 in 2017, $1,800,000 in 2018 and $1,600,000 in 2019. The weighted average amortization period of the intangible assets is 10.1 years.

 

Goodwill

 

The carrying amounts of goodwill for the Food Service, Retail Supermarket and Frozen Beverage segments are as follows:

 

   

Food

   

Retail

   

Frozen

         
   

Service

   

Supermarket

   

Beverages

   

Total

 
    (in thousands)  

Balance at March 28, 2015

  $ 46,832     $ 3,670     $ 35,940     $ 86,442  
                                 

Balance at September 27, 2014

  $ 46,832     $ 3,670     $ 35,940     $ 86,442  

 

 

There was no goodwill acquired in the three and six months ended March 28, 2015.

 

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.

 

 
15

 

  

Marketable securities held to maturity and available for sale consist primarily of investments in mutual funds and preferred stock.  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 value of preferred stock is based on quoted prices for identical or similar instruments in markets that are not active.  As a result, preferred stock is classified within Level 2 of the fair value hierarchy. 

 

 

The amortized cost, unrealized gains and losses, and fair market values of our investment securities available for sale at March 28, 2015 are summarized as follows:

 

           

Gross

   

Gross

   

Fair

 
   

Amortized

   

Unrealized

   

Unrealized

   

Market

 
   

Cost

   

Gains

   

Losses

   

Value

 
   

(in thousands)

 
                                 

Mutual Funds

  $ 117,366     $ 298     $ 3,130     $ 114,534  

Preferred Stock

    13,133       105       18       13,220  
                                 
    $ 130,499     $ 403     $ 3,148     $ 127,754  

 

The mutual funds seek current income with an emphasis on maintaining low volatility and overall moderate duration. The unrealized losses of $3.1 million are spread over 28 funds with total fair market value of $98.7 million. The Fixed-to-Floating Perpetual Preferred Stock generate fixed income to call dates in 2018, 2019 and 2025 and then income is based on a spread above LIBOR if the securities are not called. These investment securities 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 amortized cost, unrealized gains and losses, and fair market values of our investment securities held to maturity at September 27, 2014 are summarized as follows:

 

           

Gross

   

Gross

   

Fair

 
   

Amortized

   

Unrealized

   

Unrealized

   

Market

 
   

Cost

   

Gains

   

Losses

   

Value

 
    (in thousands)  

US Government Agency Debt

  $ 2,000     $ -     $ 13     $ 1,987  
                                 

Total investment securities held to maturity

  $ 2,000     $ -     $ 13     $ 1,987  

 

 
16

 

 

The amortized cost, unrealized gains and losses, and fair market values of our investment securities available for sale at September 27, 2014 are summarized as follows:

 

           

Gross

   

Gross

   

Fair

 
   

Amortized

   

Unrealized

   

Unrealized

   

Market

 
   

Cost

   

Gains

   

Losses

   

Value

 
   

(in thousands)

 
                                 

Mutual Funds

  $ 129,473     $ 760     $ 2,116     $ 128,117  
                                 

Total investment securities available for sale

  $ 129,473     $ 760     $ 2,116     $ 128,117  

 

 

The amortized cost and fair value of the Company’s held to maturity securities by contractual maturity at March 28, 2015 and September 27, 2014 are summarized as follows:

 

   

March 28, 2015

   

September 27, 2014

 
                                 
           

Fair

           

Fair

 
   

Amortized

   

Market

   

Amortized

   

Market

 
   

Cost

   

Value

   

Cost

   

Value

 
   

(in thousands)

 

Due in one year or less

  $ -     $ -     $ -     $ -  

Due after one year through five years

    -       -       -       -  

Due after five years through ten years

    -       -       2,000       1,987  

Total held to maturity securities

  $ -     $ -     $ 2,000     $ 1,987  

Less current portion

    -       -       -       -  

Long term held to maturity securities

  $ -     $ -     $ 2,000     $ 1,987  

 

Proceeds from the redemption and sale of marketable securities were $2,000,000 and $13,601,000 in the three and six months ended March 28, 2015, respectively, and $565,000 and $6,060,000 in the three and six months ended March 29, 2014, respectively. Losses of $0 and $509,000 were recorded in the three and six months ended March 28, 2015, respectively, and $36,000 and $296,000 were recorded in the three and six months ended March 29, 2014, respectively. We use the specific identification method to determine the cost of securities sold.

 

 

Note 12

In October 2013, we acquired the assets of New York Pretzel, a manufacturer and distributor of soft pretzels selling primarily in the northeast to foodservice and retail locations.  Of the purchase price of $11.8 million, $849,000 was allocated to intangible assets, $7,716,000 was allocated to goodwill and $3,049,000 was allocated to property, plant and equipment. The business had sales of about $4.3 million in our 2014 fiscal year included in the food service segment. 

 

 
17

 

 

In May 2014, we acquired the stock of Philly’s Famous Water Ice, Inc. (PHILLY SWIRL). PHILLY SWIRL, located in Tampa, FL, produces frozen novelty products sold primarily to retail supermarket locations throughout the United States and to Canada with annual sales approximating $25 million.  The allocation of the purchase price of $17.4 million is $4.0 million to working capital, $1.2 million to property, plant and equipment, $11.1 million to intangible assets, $1.8 million to goodwill, $4.0 million to deferred tax assets, $95,000 to other assets and $4.8 million to deferred tax liabilities. Sales of PHILLY SWIRL from the acquisition date to September 27, 2014 were $12.6 million and are included in the retail supermarket segment.    

   

These acquisitions were and will be accounted for under the purchase method of accounting, and their operations are and will be included in the consolidated financial statements from their respective acquisition dates.

 

 

The goodwill and intangible assets acquired in the business combinations are recorded at fair value. To measure fair value for such assets, we use techniques including discounted expected future cash flows (Level 3 inputs).

 

 
18

 

 

Note 13 Changes to the components of accumulated other comprehensive loss are as follows:

 

 

 

   

Three Months Ended March 28, 2015

           

Six Months Ended March 28, 2015

         
    (unaudited)             (unaudited)          
    (in thousands)             (in thousands)          
                                                 
           

Unrealized

                   

Unrealized

         
   

Foreign Currency

   

Holding Loss on

           

Foreign Currency

   

Holding Loss on

         
   

Translation

   

Marketable

           

Translation

   

Marketable

         
   

Adjustments

   

Securities

   

Total

   

Adjustments

   

Securities

   

Total

 
                                                 

Beginning Balance

  $ (6,587 )   $ (3,278 )   $ (9,865 )   $ (4,632 )   $ (1,356 )   $ (5,988 )
                                                 

Other comprehensive income (loss) before reclassifications

    (914 )     533       (381 )     (2,869 )     (1,605 )     (4,474 )
                                                 

Amounts reclassified from accumulated other comprehensive income

    -       -       -       -       216       216  
                                                 

Ending Balance

  $ (7,501 )   $ (2,745 )   $ (10,246 )   $ (7,501 )   $ (2,745 )   $ (10,246 )

 

 

All amounts are net of tax.

 

 

   

Three Months Ended March 29, 2014

           

Six Months Ended March 29, 2014

         
    (unaudited)             (unaudited)          
    (in thousands)             (in thousands)          
                                                 
           

Unrealized

                   

Unrealized

         
   

Foreign Currency

   

Holding Loss on

           

Foreign Currency

   

Holding Loss on

         
   

Translation

   

Marketable

           

Translation

   

Marketable

         
   

Adjustments

   

Securities

   

Total

   

Adjustments

   

Securities

   

Total

 
                                                 

Beginning Balance

  $ (3,807 )   $ (1,754 )   $ (5,561 )   $ (3,703 )   $ (2,227 )   $ (5,930 )
                                                 

Other comprehensive income (loss) before reclassifications

    (172 )     914       742       (276 )     1,126       850  
                                                 

Amounts reclassified from accumulated other comprehensive income

    -       42       42       -       303       303  
                                                 

Ending Balance

  $ (3,979 )   $ (798 )   $ (4,777 )   $ (3,979 )   $ (798 )   $ (4,777 )

 

 

All amounts are net of tax.

 

 
19

 

 

Item 2.

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

 

Liquidity and Capital Resources

 

Our current cash and cash equivalents balances 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 $.36 per share of its common stock payable on April 2, 2015, to shareholders of record as of the close of business on March 13, 2015.

 

In our fiscal year ended September 27, 2014, we purchased and retired 81,685 shares of our common stock at a cost of $7,504,729. In the three months ended March 28, 2015 we purchased 4,380 shares at a cost of $443,839 and in the six months ended March 28, 2015, we purchased 20,544 shares at a cost of $2,113,580. On November 8, 2012 the Company’s Board of Directors authorized the purchase and retirement of an additional 500,000 shares of the Company’s common stock; 241,629 shares remain to be purchased under this authorization.

 

In the three months ended March 28, 2015 and March 29, 2014 fluctuations in the valuation of the Mexican and Canadian currencies and the resulting translation of the net assets of our Mexican and Canadian subsidiaries caused an increase of $914,000 in accumulated other comprehensive loss in the 2015 second quarter and an increase of $172,000 accumulated other comprehensive loss in the 2014 second quarter. In the six month period, fluctuations in the valuation of the Mexican and Canadian currencies and the resulting translation of the net assets of our Mexican and Canadian subsidiaries caused an increase of $2,869,000 in accumulated other comprehensive loss in the 2015 six month period and an increase of $276,000 in accumulated other comprehensive loss in the 2014 six month period.

 

Our general-purpose bank credit line which expires in December 2016 provides for up to a $50,000,000 revolving credit facility. The agreement contains restrictive covenants and requires commitment fees in accordance with standard banking practice. There were no outstanding balances under this facility at March 28, 2015.

 

 

Results of Operations

 

Net sales increased $19,687,000 or 9.6% to $225,008,000 for the three months and $28,916,000 or 7.1% to $437,760,000 for the six months ended March 28, 2015 compared to the three and six months ended March 29, 2014. Excluding sales of PHILLY SWIRL, which was acquired in the third quarter of fiscal year 2014, sales increased $15,110,000 or 7.3% for the three months and $21,974,000 or 5.4% for the six months.

 

 
20

 

 

FOOD SERVICE

 

Sales to food service customers increased $6,933,000 or 5% in the second quarter to $145,262,000 and increased $11,714,000 or 4% for the six months. Soft pretzel sales to the food service market increased 6% to $41,099,000 in the second quarter and increased 5% to $81,817,000 in the six months due to increased sales to school food service and convenience stores and throughout our customer base. Increased sales to two customers accounted for approximately 1/3 of the increase in pretzel sales in the quarter and 50% in the six months. As in the first quarter, soft pretzel sales to restaurant chains this quarter were approximately the same as a year ago. Frozen juices and ices sales decreased 7% to $11,072,000 in the three months and 4% to $19,273,000 in the six months resulting primarily from lower sales to schools in the quarter and to warehouse club stores in the six months. Churro sales to food service customers increased 9% to $14,622,000 in the second quarter and were up less than 1% to $27,589,000 for the six months which was net of a decline in sales of $1,994,000 in the quarter and $4,092,000 in the six months to one restaurant chain which discontinued carrying the product in August 2014. Churro sales to other customers increased 28% in the quarter and 19% in the six months with four customers accounting for 84% and 44% of the increases in the quarter and six months, respectively.

 

Sales of bakery products increased $4,622,000 or 7% in the second quarter to $70,791,000 and $9,977,000 or 7% for the six months as sales increases to two customers and school food service accounted for all of the sales increases both periods.