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