UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the period ended June 26, 2021

or

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

Commission File Number:         0-14616

J&J SNACK FOODS CORP.

(Exact name of registrant as specified in its charter)

New Jersey	22-1935537
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

6000 Central Highway, Pennsauken, New Jersey 08109

(Address of principal executive offices)

Telephone (856) 665-9533

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, no par value	JJSF	The NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐
		Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

☐ Yes ☒ No

At July 23, 2021 there were 19,063,903 shares of the Registrant’s Common Stock outstanding.

1

INDEX

	Page Number
Part I.   Financial Information
Item l.   Consolidated Financial Statements
Consolidated Balance Sheets – June 26,2021(unaudited) and September 26, 2020	3
Consolidated Statements of Earnings (unaudited) – Three and nine months Ended June 26, 2021 and June 27, 2020	4
Consolidated Statements of Comprehensive Income (unaudited) – Three and nine months Ended June 26, 2021 and June 27, 2020	5
Consolidated Statements of Changes In Stockholders’ Equity (unaudited) – Three and nine months Ended June 26, 2021 and June 27, 2020	6
Consolidated Statements of Cash Flows (unaudited) – Nine Months Ended June 26, 2021 and June 27, 2020	7
Notes to the Consolidated Financial Statements (unaudited)	8
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.   Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.   Controls and Procedures	31
Part II.   Other Information	32
Item 6.   Exhibits	32

2

 J & J SNACK FOODS CORP. AND SUBSIDIARIES

 CONSOLIDATED BALANCE SHEETS

 (in thousands, except share amounts)

	June 26,
	2021			September 26,
	(unaudited)			2020
Assets
Current assets
Cash and cash equivalents	$	276,268		$	195,809
Marketable securities held to maturity		9,902			51,151
Accounts receivable, net		154,845			126,587
Inventories		114,822			108,923
Prepaid expenses and other		11,547			17,087
Total current assets		567,384			499,557
Property, plant and equipment, at cost
Land		2,494			2,494
Buildings		26,582			26,582
Plant machinery and equipment		340,693			330,168
Marketing equipment		253,199			250,914
Transportation equipment		10,232			9,966
Office equipment		34,291			33,878
Improvements		45,349			43,264
Construction in progress		28,134			19,995
Total Property, plant and equipment, at cost		740,974			717,261
Less accumulated depreciation and amortization		482,056			455,645
Property, plant and equipment, net		258,918			261,616
Other assets
Goodwill		121,833			121,833
Other intangible assets, net		79,676			81,622
Marketable securities held to maturity		7,568			16,927
Marketable securities available for sale		11,273			13,976
Operating lease right-of-use assets		51,811			58,110
Other		3,083			2,912
Total other assets		275,244			295,380
Total Assets	$	1,101,546		$	1,056,553
Liabilities and Stockholders' Equity
Current Liabilities
Current finance lease liabilities	$	252		$	349
Accounts payable		97,117			73,135
Accrued insurance liability		15,764			13,039
Accrued liabilities		6,890			7,420
Current operating lease liabilities		12,780			13,173
Accrued compensation expense		15,000			16,134
Dividends payable		12,064			10,876
Total current liabilities		159,867			134,126
Noncurrent finance lease liabilities		417			368
Noncurrent operating lease liabilities		41,573			47,688
Deferred income taxes		64,284			64,413
Other long-term liabilities		375			460
Stockholders' Equity
Preferred stock, $1 par value; authorized 10,000,000 shares; none issued		-			-
Common stock, no par value; authorized, 50,000,000 shares; issued and outstanding 19,061,000 and 18,915,000 respectively		69,572			49,268
Accumulated other comprehensive loss		(13,182	)		(15,587	)
Retained Earnings		778,640			775,817
Total stockholders' equity		835,030			809,498
Total Liabilities and Stockholders' Equity	$	1,101,546		$	1,056,553

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						Nine months ended
	June 26,			June 27,			June 26,			June 27,
	2021			2020			2021			2020
Net Sales	$	324,344		$	214,563		$	821,519		$	769,502
Cost of goods sold		228,170			177,367			614,324			585,002
Gross Profit		96,174			37,196			207,195			184,500
Operating expenses
Marketing		20,502			21,952			56,995			68,532
Distribution		27,311			21,272			75,643			69,648
Administrative		10,348			8,374			29,004			28,166
Plant shutdown impairment costs		-			5,072			-			5,072
Other general (income) expense		(131	)		(54	)		(399	)		(183	)
Total Operating Expenses		58,030			56,616			161,243			171,235
Operating Income (loss)		38,144			(19,420	)		45,952			13,265
Other (expense)income
Investment income (loss)		470			1,300			2,419			2,673
Interest (expense) & other		(8	)		(7	)		(19	)		(60	)
Earnings (loss) before income taxes		38,606			(18,127	)		48,352			15,878
Income taxes (benefit)		9,713			(5,480	)		11,620			4,157
NET EARNINGS (LOSS)	$	28,893		$	(12,647	)	$	36,732		$	11,721
Earnings (loss) per diluted share	$	1.51		$	(0.67	)	$	1.92		$	0.62
Weighted average number of diluted shares		19,185			18,888			19,116			19,036
Earnings (loss) per basic share	$	1.52		$	(0.67	)	$	1.93		$	0.62
Weighted average number of basic shares		19,045			18,888			18,996			18,902

The accompanying notes are an integral part of these statements.

4

J&J SNACK FOODS CORP. AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(in thousands)

	Three months ended					Nine months ended
	June 26,		June 27,			June 26,		June 27,
	2021		2020			2021		2020
Net Earnings (loss)	$	28,893	$	(12,647	)	$	36,732	$	11,721
Foreign currency translation adjustments		657		41			2,405		(3,070	)
Total Other Comprehensive Income (loss) , net of tax		657		41			2,405		(3,070	)
Comprehensive Income (loss)	$	29,550	$	(12,606	)	$	39,137	$	8,651

The accompanying notes are an integral part of these statements.

5

J & J SNACK FOODS CORP. AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

 (in thousands)

					Accumulated
					Other
	Common Stock				Comprehensive			Retained
	Shares		Amount		Loss			Earnings			Total
Balance as September 26, 2020		18,915	$	49,268	$	(15,587	)	$	775,817		$	809,498
Issuance of common stock upon exercise of stock options		41		4,390		-			-			4,390
Foreign currency translation adjustment		-		-		2,279			-			2,279
Dividends declared		-		-		-			(10,900	)		(10,900	)
Share-based compensation		-		1,244		-						1,244
Net earnings		-		-		-			1,778			1,778
Balance at December 26, 2020		18,956	$	54,902	$	(13,308	)	$	766,695		$	808,289
Issuance of common stock upon exercise of stock options		72		8,384		-			-			8,384
Issuance of common stock for employee stock purchase plan		6		714		-			-			714
Foreign currency translation adjustment		-		-		(531	)		-			(531	)
Dividends declared		-		-		-			(10,943	)		(10,943	)
Share-based compensation		-		1,026		-						1,026
Net earnings		-		-		-			6,061			6,061
Balance at March 27, 2021		19,034		65,026		(13,839	)		761,813			813,000
Issuance of common stock upon exercise of stock options		27		3,564		-			-			3,564
Foreign currency translation adjustment		-		-		657			-			657
Dividends declared		-		-		-			(12,066	)		(12,066	)
Share-based compensation		-		982		-			-			982
Net earnings		-		-		-			28,893			28,893
Balance at June 26, 2021		19,061		69,572		(13,182	)		778,640			835,030

							Accumulated
							Other
	Common Stock						Comprehensive			Retained
	Shares			Amount			Loss			Earnings			Total
Balance at September 28, 2019		18,895		$	45,744		$	(12,988	)	$	800,995		$	833,751
Issuance of common stock upon exercise of stock options		5			468			-			-			468
Foreign currency translation adjustment		-			-			810			-			810
Dividends declared		-			-			-			(10,867	)		(10,867	)
Share-based compensation		-			1,299			-			-			1,299
Net earnings		-			-			-			17,059			17,059
Balance at December 28, 2019		18,900		$	47,511		$	(12,178	)	$	807,187		$	842,520
Issuance of common stock upon exercise of stock options		47			5,049			-			-			5,049
Issuance of common stock for employee stock purchase plan		6			783			-			-			783
Foreign currency translation adjustment		-			-			(3,921	)		-			(3,921	)
Issuance of common stock under deferred stock plan		1			90			-			-			90
Dividends declared		-			-			-			(10,878	)		(10,878	)
Share-based compensation		-			1,088			-			-			1,088
Repurchase of common stock		(66	)		(8,972	)		-			-			(8,972	)
Net earnings		-			-			-			7,309			7,309
Balance at March 28, 2020		18,888			45,549			(16,099	)		803,618			833,068
Foreign currency translation adjustment		-			-			41			-			41
Dividends declared		-			-			-			(10,873	)		(10,873	)
Share-based compensation		-			1,011			-			-			1,011
Net loss		-			-			-			(12,647	)		(12,647	)
Balance at June 27, 2020		18,888			46,560			(16,058	)		780,098			810,600

The accompanying notes are an integral part of these statements.

6

J & J SNACK FOODS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)     (in thousands)

	Nine Months Ended
	June 26,			June 27,
	2021			2020
Operating activities:
Net earnings	$	36,732		$	11,721
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation of fixed assets		36,278			37,353
Amortization of intangibles and deferred costs		2,096			2,516
Share-based compensation		3,252			3,421
Deferred income taxes		(188	)		(426	)
(Gain) loss on marketable securities		(926	)		1,746
Plant shutdown impairment costs		-			5,072
Other		(305	)		(309	)
Changes in assets and liabilities net of effects from purchase of companies
(Increase) decrease in accounts receivable		(27,940	)		24,634
Increase in inventories		(5,964	)		(3,751	)
(Increase) decrease in prepaid expenses		5,710			(7,879	)
Increase (decrease) in accounts payable and accrued liabilities		24,823			(7,478	)
Net cash provided by operating activities		73,568			66,620
Investing activities:
Payments for purchases of companies, net of cash acquired		-			(57,197	)
Purchases of property, plant and equipment		(34,456	)		(47,637	)
Purchases of marketable securities		-			(6,103	)
Proceeds from redemption and sales of marketable securities		54,191			54,125
Proceeds from disposal of property and equipment		2,079			2,852
Other		42			(72	)
Net cash provided by (used in) investing activities		21,856			(54,032	)
Financing activities:
Payments to repurchase common stock		-			(8,972	)
Proceeds from issuance of stock		17,178			6,300
Payments on capitalized lease obligations		(48	)		(272	)
Payment of cash dividend		(32,719	)		(31,193	)
Net cash used in financing activities		(15,589	)		(34,137	)
Effect of exchange rate on cash and cash equivalents		624			(885	)
Net increase (decrease) in cash and cash equivalents		80,459			(22,434	)
Cash and cash equivalents at beginning of period		195,809			192,395
Cash and cash equivalents at end of period	$	276,268		$	169,961

The accompanying notes are an integral part of these statements.

7

J & J SNACK FOODS CORP. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1 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 26, 2020.   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 nine months ended June 26, 2021 and June 27, 2020 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 the third and fourth quarters due to warmer weather. 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, which has impacted the comparative nature of our results. While the majority of these venues have re-opened, the future impact of COVID-19 is still uncertain and continues to be monitored.   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 26, 2020.

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.

8

 

The singular performance obligation of our customer contracts for product and machine sales is determined by each individual purchase order and the respective products ordered, with revenue being recognized at a point-in-time when the obligation under the terms of the agreement is satisfied and product control is transferred to our customer. Specifically, control transfers to our customers when the product is delivered to, installed, or picked up by our customers based upon applicable shipping terms, as our customers can direct the use and obtain substantially all of the remaining benefits from the product at this point in time. The performance obligations in our customer contracts for product are generally satisfied within 30 days.

The singular performance obligation of our customer contracts for time and material repair and maintenance equipment service is the performance of the repair and maintenance with revenue being recognized at a point-in-time when the repair and maintenance is completed.

The singular performance obligation of our customer repair and maintenance equipment service contracts is the performance of the repair and maintenance with revenue being recognized over the time the service is expected to be performed. Our customers are billed for service contracts in advance of performance and therefore we have contract 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.

9

 

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 $15,481,000 at June 26, 2021 and $14,345,000 at September 26, 2020.

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						Nine months ended
	June 26,			June 27,			June 26,			June 27,
	2021			2020			2021			2020
Beginning Balance	$	1,090		$	1,235		$	1,327		$	1,334
Additions to contract liability	$	1,237			1,362			4,182			4,111
Amounts recognized as revenue	$	(1,283	)		(1,311	)		(4,465	)		(4,159	)
Ending Balance	$	1,044		$	1,286		$	1,044		$	1,286

Disaggregation of Revenue
 

See Note 9 for disaggregation of our net sales by class of similar product and type of customer.

10

 

Allowance for Doubtful Receivables

We provide an allowance for doubtful receivables after taking into consideration historical experience and other factors. On September 27, 2020, the Company adopted guidance issued by the FASB in ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which requires companies to recognize an allowance that reflects a current estimate of credit losses expected to be incurred over the life of the asset. Adoption of this new guidance did not have a material impact on the consolidated financial statements. The Company continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses. The allowance for doubtful accounts considers a number of factors including the age of receivable balances, the history of losses, expectations of future credit losses and the customers’ ability to pay off obligations. The allowance for doubtful receivables was $1,185,000 and $1,388,000 on June 26, 2021 and September 26, 2020, 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 2 to 20 years. Depreciation expense was $12,025,000 and $12,543,000 for the three months ended June 26, 2021 and June 27, 2020, respectively and $36,278,000 and $37,353,000 for the nine months ended June 26, 2021 and June 27, 2020, respectively.

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:

11

 

	Three Months Ended June 26, 2021
	Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount
	(in thousands, except per share amounts)
Basic EPS
Net Earnings available to common stockholders	$	28,893		19,045	$	1.52
Effect of Dilutive Securities
Options		-		140		(0.01	)
Diluted EPS
Net Earnings available to common stockholders plus assumed conversions	$	28,893		19,185	$	1.51

20,800 anti-dilutive shares have been excluded in the computation of EPS for  the three months ended June 26, 2021

	Nine Months Ended June 26, 2021
	Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount
	(in thousands, except per share amounts)
Basic EPS
Net Earnings available to common stockholders	$	36,732		18,996	$	1.93
Effect of Dilutive Securities
Options		-		120		(0.01	)
Diluted EPS
Net Earnings available to common stockholders plus assumed conversions	$	36,732		19,116	$	1.92

289,692 anti-dilutive shares have been excluded in the computation of EPS for the nine months ended June 26, 2021

12

 

	Three Months Ended June 27, 2020
	Income			Shares		Per Share
	(Numerator)			(Denominator)		Amount
	(in thousands, except per share amounts)
Basic EPS
Net Earnings available to common stockholders	$	(12,647	)		18,888	$	(0.67	)
Effect of Dilutive Securities
Options		-			-		-
Diluted EPS
Net Earnings available to common stockholders plus assumed conversions	$	(12,647	)		18,888	$	(0.67	)

845,977 anti-dilutive shares have been excluded in the computation  of EPS for the three months ended June 27, 2020

	Nine Months Ended June 27, 2020
	Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount
	(in thousands, except per share amounts)
Basic EPS
Net Earnings available to common stockholders	$	11,721		18,902	$	0.62
Effect of Dilutive Securities
Options		-		134		-
Diluted EPS
Net Earnings available to common stockholders plus assumed conversions	$	11,721		19,036	$	0.62

169,246 anti-dilutive shares have been excluded in the computation  of EPS for the nine months ended June 27, 2020

Note 5 At June 26, 2021, the Company has three stock-based employee compensation plans. Share-based compensation expense was recognized as follows:

	Three months ended				Nine months ended
	June 26,		June 27,		June 26,		June 27,
	2021		2020		2021		2020
	(in thousands)
Stock Options	$	512	$	890	$	1,505	$	2,267
Stock purchase plan		171		57		513		328
Stock issued to outside director		11		17		33		50
Restricted stock issued to an employee		23		-		70		-
Total share-based compensation	$	717	$	964	$	2,121	$	2,645
The above compensation is net of tax benefits	$	265	$	70	$	1,131	$	822

13

 

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 2021 nine months: expected volatility of 25.8%; risk-free interest rate of 0.8%; dividend rate of 1.4% and expected lives of 51 months.

During  the fiscal year 2021 nine-month period, the Company granted 138,432 stock options. The weighted-average grant date fair value of these options was $31.20.

During the fiscal year 2020 nine-month period, the Company granted 161,682 stock options. The weighted-average grant date fair value of these options was $14.40.

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

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 $343,000 and $360,000 on June 26, 2021 and September 26, 2020, respectively, all of which would impact our effective tax rate over time, if recognized. We recognize interest and penalties related to uncertain tax positions as a part of the provision for income taxes. As of June 26, 2021, and September 26, 2020, the Company has $267,000 of accrued interest and penalties.

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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 nine months ended June 26, 2021 was 24%, primarily due to a $1,131,000 tax benefit related to share-based compensation. Our effective tax rate for the nine months ended June 27, 2020 was 26%.

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:

	June 26,		September 26,
	2021		2020
	(unaudited)
	(in thousands)
Finished goods	$	40,850	$	40,184
Raw materials		29,171		24,550
Packaging materials		12,080		10,545
Equipment parts and other		32,721		33,644
Total Inventories	$	114,822	$	108,923

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.   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. These segments are described below.

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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. 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.

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. Sales and operating income are key variables monitored by the Chief Operating Decision Makers and management when determining each segment’s and the company’s financial condition and operating performance. 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:

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	Three months ended						Nine months ended
	June 26			June 27			June 26			June 27
	2021			2020			2021			2020
Sales to External Customers:
Food Service
Soft pretzels	$	50,895		$	21,384		$	120,359		$	116,985
Frozen juices and ices		13,927			8,688			30,812			25,222
Churros		20,096			7,321			46,358			38,466
Handhelds		18,971			7,448			56,574			22,084
Bakery		85,706			69,237			257,580			255,016
Other		6,884			2,543			14,546			13,628
Total Food Service	$	196,478		$	116,621		$	526,226		$	471,401
Retail Supermarket
Soft pretzels	$	11,193		$	12,716		$	40,871		$	34,874
Frozen juices and ices		36,898			33,322			71,600			59,279
Biscuits		4,562			8,151			18,717			21,759
Handhelds		1,191			3,257			6,215			9,135
Coupon redemption		(513	)		(807	)		(2,196	)		(2,216	)
Other		526			863			1,652			1,668
Total Retail Supermarket	$	53,857		$	57,502		$	136,859		$	124,499
Frozen Beverages
Beverages	$	42,279		$	16,456		$	76,663		$	83,606
Repair and maintenance service		22,789			17,259			59,903			61,524
Machines revenue		8,404			6,363			20,556			27,254
Other		536			362			1,312			1,218
Total Frozen Beverages	$	74,009		$	40,440		$	158,434		$	173,602
Consolidated Sales	$	324,344		$	214,563		$	821,519		$	769,502
Depreciation and Amortization:
Food Service	$	6,817		$	7,050		$	20,334		$	21,208
Retail Supermarket		378			468			1,147			1,156
Frozen Beverages		5,469			5,864			16,893			17,505
Total Depreciation and Amortization	$	12,664		$	13,382		$	38,374		$	39,869
Operating Income :
Food Service	$	17,644		$	(18,242	)	$	29,879		$	7,743
Retail Supermarket		9,080			7,910			20,167			14,464
Frozen Beverages		11,420			(9,088	)		(4,094	)		(8,942	)
Total Operating Income (Loss)	$	38,144		$	(19,420	)	$	45,952		$	13,265
Capital Expenditures:
Food Service	$	10,383		$	7,865		$	25,915		$	26,599
Retail Supermarket		93			390			194			1,625
Frozen Beverages		5,151			2,397			8,347			19,413
Total Capital Expenditures	$	15,627		$	10,652		$	34,456		$	47,637
Assets:
Food Service	$	779,730		$	729,331		$	779,730		$	729,331
Retail Supermarket		33,405			33,766			33,405			33,766
Frozen Beverages		288,411			294,189			288,411			294,189
Total Assets	$	1,101,546		$	1,057,286		$	1,101,546		$	1,057,286

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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 June 26, 2021 and September 26, 2020 are as follows:

	June 26, 2021				September 26, 2020
	Gross				Gross
	Carrying		Accumulated		Carrying		Accumulated
	Amount		Amortization		Amount		Amortization
	(in thousands)
FOOD SERVICE
Indefinite lived intangible assets
Trade names	$	10,408	$	-	$	10,408	$	-
Amortized intangible assets
Non compete agreements		670		670		670		645
Customer relationships		13,000		5,863		19,737		11,595
License and rights		1,690		1,375		1,690		1,312
TOTAL FOOD SERVICE	$	25,768	$	7,908	$	32,505	$	13,552
RETAIL SUPERMARKETS
Indefinite lived intangible assets
Trade names	$	12,750	$	-	$	12,750	$	-
Amortized Intangible Assets
Trade names		676		619		676		519
Customer relationships		7,907		5,733		7,907		5,140
TOTAL RETAIL SUPERMARKETS	$	21,333	$	6,352	$	21,333	$	5,659
FROZEN BEVERAGES
Indefinite lived intangible assets
Trade names	$	9,315	$	-	$	9,315	$	-
Distribution rights		36,100		-		36,100		-
Amortized intangible assets
Customer relationships		1,439		365		1,439		257
Licenses and rights		1,400		1,054		1,400		1,002
TOTAL FROZEN BEVERAGES	$	48,254	$	1,420	$	48,254	$	1,259
CONSOLIDATED	$	95,355	$	15,680	$	102,092	$	20,470

Fully amortized intangible assets have been removed from the June 26, 2021 amounts.

Amortizing intangible assets are being amortized by the straight-line method over periods ranging from 2 to 20 years and amortization expense is reflected throughout operating expenses. Aggregate amortization expense of intangible assets for the three months ended June 26, 2021 and June 27, 2020 was $639,000 and $831,000, respectively. Aggregate amortization expense of intangible assets for the nine months ended June 26, 2021 and June 27, 2020 was $2,096,000 and $2,507,000, respectively.

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Estimated amortization expense for the next five fiscal years is approximately $2,500,000 in 2021, $2,300,000 in 2022, $2,300,000 in 2023, $2,000,000 in 2024, and $1,400,000 in 2025. The weighted amortization period of the intangible assets is 10.9 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 June 26, 2021	$	61,189	$	4,146	$	56,498	$	121,833
Balance at September 26, 2020	$	61,189	$	4,146	$	56,498	$	121,833

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. 

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The amortized cost, unrealized gains and losses, and fair market values of our investment securities held to maturity at June 26, 2021 are summarized as follows:

	Gross	Gross	Fair
Amortized	Unrealized	Unrealized	Market
Cost	Gains	Losses	Value
(in thousands)