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UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the period ended June 29, 2024

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.)

                                                  

                                                     

350 Fellowship Road, Mt. Laurel, New Jersey 08054

(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 August 2, 2024 there were 19,423,721 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 29, 2024 (unaudited) and September 30, 2023 

3
     
 

Consolidated Statements of Earnings (unaudited) - Three and Nine Months Ended June 29, 2024 and June 24, 2023 

4
     
 

Consolidated Statements of Comprehensive Income (unaudited) – Three and Nine Months Ended June 29, 2024 and June 24, 2023

5
 

 

 
 

Consolidated Statements of Changes In Stockholders’ Equity (unaudited) – Three and Nine Months Ended June 29, 2024 and June 24, 2023

6
 

 

 
 

Consolidated Statements of Cash Flows (unaudited) – Three and Nine Months Ended June 29, 2024 and June 24, 2023 

7
     
 

Notes to the Consolidated Financial Statements (unaudited) 

8
     
Item 2.

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

19
     
Item 3.

Quantitative and Qualitative Disclosures About Market Risk   

26
     
Item 4.

Controls and Procedures  

26
     
Part II.

Other Information

26
     
Item 1.

Legal Proceedings 

26
     
Item 1A.

Risk Factors       

26
     
Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds      

26
     
Item 5.

Other Information

26
     
Item 6.

Exhibits  

26
     
Signatures

 

27

 

2

 

PART I.         FINANCIAL INFORMATION

 

 

Item 1.         Consolidated Financial Statements

 

 

J & J SNACK FOODS CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

 

   

June 29,

         
   

2024

   

September 30,

 
   

(unaudited)

   

2023

 

Assets

               

Current assets

               

Cash and cash equivalents

  $ 64,047     $ 49,581  

Accounts receivable, net

    208,665       198,129  

Inventories

    179,696       171,539  

Prepaid expenses and other

    8,736       10,963  

Total current assets

    461,144       430,212  
                 

Property, plant and equipment, at cost

               

Land

    3,684       3,684  

Buildings

    54,996       45,538  

Plant machinery and equipment

    471,235       445,299  

Marketing equipment

    313,103       296,482  

Transportation equipment

    15,737       14,367  

Office equipment

    48,454       47,393  

Improvements

    67,565       51,319  

Construction in progress

    28,986       56,116  

Total Property, plant and equipment, at cost

    1,003,760       960,198  

Less accumulated depreciation and amortization

    609,601       574,295  

Property, plant and equipment, net

    394,159       385,903  
                 

Other assets

               

Goodwill

    185,070       185,070  

Other intangible assets, net

    184,203       183,529  

Operating lease right-of-use assets

    152,712       88,868  

Other

    3,387       3,654  

Total other assets

    525,372       461,121  

Total Assets

  $ 1,380,675     $ 1,277,236  
                 

Liabilities and Stockholders' Equity

               

Current liabilities

               

Current finance lease liabilities

  $ 221     $ 201  

Accounts payable

    108,642       90,758  

Accrued insurance liability

    18,084       15,743  

Accrued liabilities

    20,956       14,214  

Current operating lease liabilities

    19,104       16,478  

Accrued compensation expense

    21,919       23,341  

Dividends payable

    14,264       14,209  

Total current liabilities

    203,190       174,944  
                 

Long-term debt

    12,000       27,000  

Noncurrent finance lease liabilities

    441       600  

Noncurrent operating lease liabilities

    140,724       77,631  

Deferred income taxes

    81,652       81,310  

Other long-term liabilities

    4,752       4,233  
                 

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 19,408,000 and 19,332,000 respectively

    129,054       114,556  

Accumulated other comprehensive loss

    (12,429 )     (10,166 )

Retained Earnings

    821,291       807,128  

Total stockholders' equity

    937,916       911,518  

Total Liabilities and Stockholders' Equity

  $ 1,380,675     $ 1,277,236  

 

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 29,

   

June 24,

   

June 29,

   

June 24,

 
   

2024

   

2023

   

2024

   

2023

 
                                 

Net sales

  $ 439,957     $ 425,769     $ 1,147,999     $ 1,114,966  
                                 

Cost of goods sold

    292,191       282,887       797,405       790,845  

Gross profit

    147,766       142,882       350,594       324,121  
                                 

Operating expenses

                               

Marketing

    32,598       31,308       87,720       79,024  

Distribution

    45,074       44,485       129,626       124,722  

Administrative

    19,880       18,740       56,600       53,050  

Other general expense (income)

    98       55       (1,055 )     (490 )

Total operating expenses

    97,650       94,588       272,891       256,306  
                                 

Operating income

    50,116       48,294       77,703       67,815  
                                 

Other income (expense)

                               

Investment income

    783       633       2,265       1,719  

Interest expense

    (543 )     (1,314 )     (1,532 )     (3,697 )
                                 

Earnings before income taxes

    50,356       47,613       78,436       65,837  
                                 

Income tax expense

    14,057       12,632       21,526       17,352  
                                 

NET EARNINGS

  $ 36,299     $ 34,981     $ 56,910     $ 48,485  
                                 

Earnings per diluted share

  $ 1.87     $ 1.81     $ 2.93     $ 2.51  
                                 

Weighted average number of diluted shares

    19,456       19,327       19,423       19,299  
                                 

Earnings per basic share

  $ 1.87     $ 1.82     $ 2.94     $ 2.52  
                                 

Weighted average number of basic shares

    19,396       19,257       19,373       19,239  

 

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 29,

   

June 24,

   

June 29,

   

June 24,

 
   

2024

   

2023

   

2024

   

2023

 
                                 

Net earnings

  $ 36,299     $ 34,981     $ 56,910     $ 48,485  
                                 

Foreign currency translation adjustments

    (4,546 )     2,775       (2,263 )     4,714  
Total other comprehensive (loss) income, net of tax     (4,546 )     2,775       (2,263 )     4,714  
                                 

Comprehensive income

  $ 31,753     $ 37,756     $ 54,647     $ 53,199  

 

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

(Unaudited)

(in thousands)

 

                   

Accumulated

                 
                   

Other

                 
   

Common Stock

   

Comprehensive

   

Retained

         
   

Shares

   

Amount

   

Loss

   

Earnings

   

Total

 
                                         

Balance at September 30, 2023

    19,332     $ 114,556     $ (10,166 )   $ 807,128     $ 911,518  
                                         
Common Stock issued in connection with employee and director plans, net of tax withheld     35       4,481       -       -       4,481  

Foreign currency translation adjustment

    -       -       1,935       -       1,935  

Dividends declared

    -       -       -       (14,235 )     (14,235 )

Share-based compensation

    -       1,480       -       -       1,480  

Net earnings

    -       -       -       7,282       7,282  

Balance at December 30, 2023

    19,367     $ 120,517     $ (8,231 )   $ 800,175     $ 912,461  
                                         

Common Stock issued in connection with employee and director plans, net of tax withheld

    9       715       -       -       715  

Issuance of common stock for employee stock purchase plan

    10       1,320       -       -       1,320  

Foreign currency translation adjustment

    -       -       348       -       348  

Dividends declared

    -       -       -       (14,249 )     (14,249 )

Share-based compensation

    -       1,728       -       -       1,728  

Net earnings

    -       -       -       13,329       13,329  

Balance at March 30, 2024

    19,386     $ 124,280     $ (7,883 )   $ 799,255     $ 915,652  
                                         

Common Stock issued in connection with employee and director plans, net of tax withheld

    22       3,141       -       -       3,141  

Foreign currency translation adjustment

    -       -       (4,546 )     -       (4,546 )

Dividends declared

    -       -       -       (14,263 )     (14,263 )

Share-based compensation

    -       1,633       -       -       1,633  

Net earnings

    -       -       -       36,299       36,299  

Balance at June 29, 2024

    19,408     $ 129,054     $ (12,429 )   $ 821,291     $ 937,916  

 

                   

Accumulated

                 
                   

Other

                 
   

Common Stock

   

Comprehensive

   

Retained

         
   

Shares

   

Amount

   

Loss

   

Earnings

   

Total

 
                                         

Balance at September 24, 2022

    19,219     $ 94,026     $ (13,713 )   $ 782,856     $ 863,169  
                                         
Common Stock issued in connection with employee and director plans, net of tax withheld     10       1,285       -       -       1,285  

Foreign currency translation adjustment

    -       -       871       -       871  

Dividends declared

    -       -       -       (13,461 )     (13,461 )

Share-based compensation

    -       1,239       -       -       1,239  

Net earnings

    -       -       -       6,633       6,633  

Balance at December 24, 2022

    19,229     $ 96,550     $ (12,842 )   $ 776,028     $ 859,736  
                                         

Common Stock issued in connection with employee and director plans, net of tax withheld

    14       1,713       -       -       1,713  

Issuance of common stock for employee stock purchase plan

    9       1,061       -       -       1,061  

Foreign currency translation adjustment

    -       -       1,068       -       1,068  

Dividends declared

    -       -       -       (13,475 )     (13,475 )

Share-based compensation

    -       1,313       -       -       1,313  

Net earnings

    -       -       -       6,871       6,871  

Balance at March 25, 2023

    19,252     $ 100,637     $ (11,774 )   $ 769,424     $ 858,287  
                                         

Common Stock issued in connection with employee and director plans, net of tax withheld

    18       2,230       -       -       2,230  

Foreign currency translation adjustment

    -       -       2,775       -       2,775  

Dividends declared

    -       -       -       (13,489 )     (13,489 )

Share-based compensation

    -       1,383       -       -       1,383  

Net earnings

    -       -       -       34,981       34,981  

Balance at June 24, 2023

    19,270     $ 104,250     $ (8,999 )   $ 790,916     $ 886,167  

 

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 29,

   

June 24,

 
   

2024

   

2023

 

Operating activities:

               

Net earnings

  $ 56,910     $ 48,485  

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

               

Depreciation of fixed assets

    47,141       41,319  

Amortization of intangibles and deferred costs

    5,244       5,065  

(Gain) from disposals of property & equipment

    (23 )     (255 )

Share-based compensation

    4,841       3,935  

Deferred income taxes

    310       (937 )

(Gain) on marketable securities

    -       (105 )

Other

    268       (237 )

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

               

(Increase) in accounts receivable

    (10,949 )     (7,680 )

(Increase) decrease in inventories

    (7,264 )     4,875  

Decrease in prepaid expenses

    2,187       8,487  

Increase in accounts payable and accrued liabilities

    28,081       2,992  

Net cash provided by operating activities

    126,746       105,944  
                 

Investing activities:

               

Payments for acquisitions

    (7,014 )     -  

Purchases of property, plant and equipment

    (56,371 )     (76,472 )

Proceeds from redemption and sales of marketable securities

    -       5,300  

Proceeds from disposal of property and equipment

    484       774  

Net cash investing activities

    (62,901 )     (70,398 )
                 

Financing activities:

               

Proceeds from issuance of stock

    9,657       6,289  

Borrowings under credit facility

    57,000       102,000  

Repayment of borrowings under credit facility

    (72,000 )     (74,000 )

Payments on finance lease obligations

    (120 )     (150 )

Payment of cash dividend

    (42,693 )     (40,389 )

Net cash (used in) financing activities

    (48,156 )     (6,250 )
                 

Effect of exchange rates on cash and cash equivalents

    (1,223 )     1,166  
                 

Net increase in cash and cash equivalents

    14,466       30,462  

Cash and cash equivalents at beginning of period

    49,581       35,181  

Cash and cash equivalents at end of period

  $ 64,047     $ 65,643  

 

The accompanying notes are an integral part of these statements.

 

 

7

 

J & J SNACK FOODS CORP. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

 

Note 1

Basis of Presentation

 

The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all information and notes required by generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2023.

 

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the Company’s financial position and the results of operations and cash flows.

 

The results of operations for the three and nine months ended June 29, 2024 and June 24, 2023 are not necessarily indicative of results for the full year. Sales of our frozen beverages and frozen novelties are generally higher in the fiscal third and fourth quarters due to warmer weather.

 

While we believe that the disclosures presented are adequate to make the information not misleading, it is suggested that these consolidated financial statements be read in conjunction with the audited consolidated financial statements and the notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2023.

 

 

 

Note 2

Revenue Recognition

 

We recognize revenue in accordance with ASC 606, “Revenue from Contracts with Customers.”

 

When Performance Obligations Are Satisfied

 

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account for revenue recognition. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

 

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

 

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

 

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

 

Significant Payment Terms

 

In general, within our customer contracts, the purchase order identifies the product, quantity, price, pick-up allowances, payment terms and final delivery terms. Although some payment terms may be more extended, presently, the majority of our payment terms are 30 days. As a result, we have used the available practical expedient and, consequently, do not adjust our revenues for the effects of a significant financing component.

 

8

 

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 $24.4 million at June 29, 2024 and $18.9 million at September 30, 2023.

 

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

 

Contract liabilities consist of deferred revenue resulting from service contracts in our Frozen Beverages segment where our customers are billed for service in advance of performance. Contract liabilities also consist of deferred revenue in our Food Service segment resulting from initial franchise fees paid by franchisees, as well as renewal and transfer fees paid by franchisees and license fees paid by licensees which are generally recognized on a straight-line basis over the term of the underlying agreement. Therefore, we have contract liabilities on our balance sheet as follows:

 

   

Three months ended

   

Nine months ended

 
   

June 29,

   

June 24,

   

June 29,

   

June 24,

 
   

2024

   

2023

   

2024

   

2023

 
   

(in thousands)

   

(in thousands)

 
                                 

Beginning Balance

  $ 4,749     $ 4,829     $ 5,306     $ 4,926  

Additions to contract liability

    2,105       2,281       5,150       5,198  

Amounts recognized as revenue

    (1,812 )     (1,651 )     (5,414 )     (4,665 )

Ending Balance

  $ 5,042     $ 5,459     $ 5,042     $ 5,459  

 

 

Disaggregation of Revenue

 

See Note 10 for disaggregation of our net sales by class of similar product and type of customer.

 

Allowance for Estimated Credit Losses

 

The Company continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses. The allowance for estimated credit losses considers numerous 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 estimated credit losses was $3.6 million and $3.2 million on June 29, 2024 and September 30, 2023, respectively.

 

 

 

Note 3

Depreciation and Amortization Expense

 

Depreciation of equipment and buildings is provided for by the straight-line method over the assets’ estimated useful lives. Amortization of improvements is provided for by the straight-line method over the term of the lease or the assets’ estimated useful lives, whichever is shorter. Licenses and rights, customer relationships, franchise agreements, technology, and amortizable trade names arising from acquisitions are amortized by the straight-line method over periods ranging from 2 to 20 years. Depreciation expense was $16.2 million and $14.1 million for the three months ended June 29, 2024 and June 24, 2023, respectively and $47.1 million and $41.3 million for the nine months ended June 29, 2024 and June 24, 2023, respectively.

 

9

  

 

Note 4

Earnings Per Share

 

Basic earnings per common share (“EPS”) excludes dilution and is computed by dividing income available to common shareholders by the weighted average common shares outstanding during the period. Diluted EPS takes into consideration the potential dilution that could occur if securities (stock options, service share units (“RSU”)’s, and performance share units (“PSU”)’s) or other contracts to issue common stock were exercised and converted into common stock. Our calculation of EPS is as follows:

 

   

Three months ended June 29, 2024

 
   

Income

   

Shares

   

Per Share

 
   

(Numerator)

   

(Denominator)

   

Amount

 
   

(in thousands, except per share amounts)

 

Basic EPS

                       

Net earnings available to common stockholders

  $ 36,299       19,396     $ 1.87  
                         

Effect of dilutive securities

                       
RSU's, PSU’s and options     -       60       -  
                         

Diluted EPS

                       

Net earnings available to common stockholders plus assumed conversions

  $ 36,299       19,456     $ 1.87  

 

161,095 anti-dilutive shares have been excluded in the computation of EPS for the three months ended June 29, 2024.

 

   

Nine months ended June 29, 2024

 
   

Income

   

Shares

   

Per Share

 
   

(Numerator)

   

(Denominator)

   

Amount

 
   

(in thousands, except per share amounts)

 

Basic EPS

                       

Net earnings available to common stockholders

  $ 56,910       19,373     $ 2.94  
                         

Effect of dilutive securities

                       
RSU's, PSU’s and options     -       50       (0.01 )
                         

Diluted EPS

                       

Net earnings available to common stockholders plus assumed conversions

  $ 56,910       19,423     $ 2.93  

 

189,059 anti-dilutive shares have been excluded in the computation of EPS for the nine months ended June 29, 2024.

 

   

Three months ended June 24, 2023

 
   

Income

   

Shares

   

Per Share

 
   

(Numerator)

   

(Denominator)

   

Amount

 
   

(in thousands, except per share amounts)

 

Basic EPS

                       

Net earnings available to common stockholders

  $ 34,981       19,257     $ 1.82  
                         

Effect of dilutive securities

                       
RSU's, PSU’s and options     -       70       (0.01 )
                         

Diluted EPS

                       

Net earnings available to common stockholders plus assumed conversions

  $ 34,981       19,327     $ 1.81  

 

249,440 anti-dilutive shares have been excluded in the computation of EPS for the three months ended June 24, 2023.

 

   

Nine months ended June 24, 2023

 
   

Income

   

Shares

   

Per Share

 
   

(Numerator)

   

(Denominator)

   

Amount

 
   

(in thousands, except per share amounts)

 

Basic EPS

                       

Net earnings available to common stockholders

  $ 48,485       19,239     $ 2.52  
                         

Effect of dilutive securities

                       
RSU's, PSU’s and options     -       60       (0.01 )
                         

Diluted EPS

                       

Net earnings available to common stockholders plus assumed conversions

  $ 48,485       19,299     $ 2.51  

 

379,920 anti-dilutive shares have been excluded in the computation of EPS for the nine months ended June 24, 2023.

 

10

  

 

Note 5

Share-Based Compensation

 

At June 29, 2024, the Company has three stock-based employee compensation plans. Share-based compensation expense was recognized as follows:

 

   

Three months ended

   

Nine months ended

 
   

June 29,

   

June 24,

   

June 29,

   

June 24,

 
   

2024

   

2023

   

2024

   

2023

 
   

(in thousands)

   

(in thousands)

 
                                 

Stock options

  $ 256     $ 449     $ 983     $ 1,628  

Stock purchase plan

    131       118       369       542  

Stock issued to outside directors

    32       39       106       66  

Service share units issued to employees

    468       295       1,294       669  

Performance share units issued to employees

    377       177       1,024       420  

Total share-based compensation

  $ 1,264     $ 1,078     $ 3,776     $ 3,325  
                                 

The above compensation is net of tax benefits

  $ 369     $ 305     $ 1,065     $ 610  

 

The fair value of each option grant is estimated on the date of grant using the Black-Scholes options-pricing model.

 

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

 

The Company did not grant any stock options during the nine months ended June 29, 2024 or during the nine months ended June 24, 2023.

 

During the three and nine months ended June 29, 2024, the Company issued 14,441 and 25,987 service share units (“RSU”)’s, respectively. During the three and nine months ended June 24, 2023, the Company issued 11,964 and 21,864 RSU’s, respectively. Each RSU entitles the awardee to one share of common stock upon vesting. The fair value of RSU’s was determined based upon the closing price of the Company’s common stock on the date of grant.

 

During the three and nine months ended June 29, 2024, the Company issued 2,968 and 14,506 performance share units (“PSU”)’s, respectively. During the three and nine months ended June 24, 2023, the Company issued 2,169 and 21,260 PSU’s, respectively. Each PSU may result in the issuance of up to two shares of common stock upon vesting, dependent upon the level of achievement of the applicable Performance Goal. The fair value of the PSU’s was determined based upon the closing price of the Company’s common stock on the date of grant. Additionally, the Company applies a quarterly probability assessment in computing this non-cash compensation expense, and any change in estimate is reflected as a cumulative adjustment to expense in the quarter of the change.

 

 

 

Note 6

Income Taxes

 

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

 

Additionally, we recognize a liability for income taxes and associated penalties and interest for tax positions taken or expected to be taken in a tax return which are more likely than not to be overturned by taxing authorities (“uncertain tax positions”). We have not recognized a tax benefit in our financial statements for these uncertain tax positions.  

 

The total amount of gross unrecognized tax benefits is $0.3 million on both June 29, 2024 and September 30, 2023, 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 29, 2024 and September 30, 2023, the Company has $0.3 million of accrued interest and penalties, respectively.

 

11

 

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. Virtually all the returns noted above are open for examination for three to four years.

 

Our effective tax rate was 27.9% for the three months ended June 29, 2024, as compared with 26.5% in the prior fiscal year period.

 

Our effective tax rate was 27.4% for the nine months ended June 29, 2024, as compared with 26.4% in the prior fiscal year period.

 

 

 

Note 7

New Accounting Pronouncements and Policies

 

In December 2022, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2022-06, "Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848", to provide optional guidance to temporarily ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. Preceding the issuance of ASU 2020-04, which established ASC 848, the United Kingdom's Financial Conduct Authority ("FCA") announced that it would no longer need to persuade or compel banks to submit to LIBOR after December 31, 2021. In response, the FASB established December 31, 2022 as the expiration date for ASC 848. In March 2021, the FCA announced the intended cessation date of the overnight 1-, 3-, 6-, and 12-month USD LIBOR would be June 30, 2023. Because the current relief in Topic 848 may not cover a period of time during which a significant number of modifications may take place, this update deferred the sunset date in Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. This guidance is not expected to have a material impact on our consolidated financial statements and disclosures.

 

In September 2022, the FASB issued ASU No. 2022-04 “Liabilities – Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations”. This guidance requires annual and interim disclosures for entities that use supplier finance programs in connection with the purchase of goods and services. These amendments are effective for fiscal years beginning after December 15, 2022, except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023. The Company adopted this guidance during the three months ended December 30, 2023. The adoption of this guidance did not have a material impact on our consolidated financial statements and disclosures.

 

In November 2023, the FASB issued ASU No. 2023-07 “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” This guidance requires all public entities to provide enhanced disclosures about significant segment expenses. The amendments in this ASU are to be applied retrospectively and are effective for fiscal years beginning after December 15, 2023 and for interim periods within fiscal years beginning after December 15, 2024. We are currently assessing the impact of the guidance on our consolidated financial statements and disclosures.

 

In December 2023, the FASB issued ASU No. 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” This guidance enhances the transparency around income tax information through improvements to income tax disclosures, primarily related to the effective rate reconciliation and income taxes paid, to improve the overall effectiveness of income tax disclosures. The amendments in the ASU are effective for fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently assessing the impact of the guidance on our consolidated financial statements and disclosures.

 

In March 2024, the SEC adopted final rules to require disclosures about certain climate-related information in registration statements and annual reports. In April 2024, the SEC issued an order to stay the rules pending the completion of judicial review of multiple petitions challenging the rules. The rules will require disclosure of, amongst other things, material climate-related risks, how the board of directors and management oversee such risks, and the actual and potential material impacts of such risks. The rules also require disclosure around material climate-related targets and goals, Scope 1 and Scope 2 green-house gas emissions, and the financial impacts of severe weather events and other natural conditions. If the rules are ultimately implemented, their adoption will be phased, and accordingly, we would be required to begin to make certain disclosures for our annual period ending September 26, 2026, applied prospectively. We are currently assessing the impact of the guidance on our consolidated financial statements and disclosures.

 

 

 

Note 8

Long-Term Debt

 

In December 2021, the Company entered into an amended and restated loan agreement (the “Credit Agreement”) with our existing banks which provided for up to a $50 million revolving credit facility repayable in December 2026.

 

12

 

Interest accrues, at the Company’s election at (i) the BSBY Rate (as defined in the Credit Agreement), plus an applicable margin, based upon the Consolidated Net Leverage Ratio, as defined in the Credit Agreement, or (ii) the Alternate Base Rate (a rate based on the higher of (a) the prime rate announced from time-to-time by the Administrative Agent, (b) the Federal Reserve System’s federal funds rate, plus 0.50% or (c) the Daily BSBY Rate, plus an applicable margin). The Alternate Base Rate is defined in the Credit Agreement.

 

The Credit Agreement requires the Company to comply with various affirmative and negative covenants, including without limitation (i) covenants to maintain a minimum specified interest coverage ratio and maximum specified net leverage ratio, and (ii) subject to certain exceptions, covenants that prevent or restrict the Company’s ability to pay dividends, engage in certain mergers or acquisitions, make certain investments or loans, incur future indebtedness, alter its capital structure or line of business, prepay subordinated indebtedness, engage in certain transactions with affiliates, or amend its organizational documents. As of June 29, 2024, the Company is in compliance with all financial covenants terms of the Credit Agreement.

 

On June 21, 2022, the Company entered into an amendment to the Credit Agreement, the “Amended Credit Agreement” which provided for an incremental increase of $175 million in available borrowings. The Amended Credit Agreement also includes an option to increase the size of the revolving credit facility by up to an amount not to exceed in the aggregate the greater of $225 million or $50 million, plus the Consolidated EBITDA of the Borrowers, subject to the satisfaction of certain terms and conditions.

 

As of June 29, 2024, $12.0 million was outstanding under the Amended Credit Agreement with a weighted average interest rate of 6.34%. These borrowings have been classified as Long-Term Debt on the Company’s Balance Sheet. As of June 29, 2024, the amount available under the Amended Credit Agreement was $203.2 million, after giving effect to the outstanding letters of credit. As of September 30, 2023, $27.0 million was outstanding under the Credit Agreement. As of September 30, 2023, the amount available under the Amended Agreement was $188.2 million, after giving effect to the outstanding letters of credit.

 

 

 

Note 9

Inventory

 

Inventories consist of the following:

 

   

June 29,

   

September 30,

 
   

2024

   

2023

 
   

(unaudited)

         
   

(in thousands)

 
                 

Finished goods

  $ 90,025     $ 86,472  

Raw materials

    31,889       30,537  

Packaging materials

    13,014       12,484  

Equipment parts and other

    44,768       42,046  

Total inventories

  $ 179,696     $ 171,539  

 

On April 8, 2024, the Company acquired the Thinsters cookie business from Hain Celestial Group. Under the Company’s framework for evaluating acquisitions and in accordance with Generally Accepted Accounting Principles, the Company is in process of evaluating whether the transaction will be accounted for as an asset acquisition or a business combination. The acquisition included inventory with a preliminary fair value of $1.1 million.

 

 

Note 10

Segment Information

 

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

 

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; fast food and casual dining restaurants; stadiums and sports arenas; leisure and theme parks; convenience stores; movie theatres; warehouse club stores; schools, colleges and other institutions. Within the food service industry, our products are purchased by the consumer primarily for consumption at the point-of-sale or for take-away.

 

Retail Supermarkets

 

The primary products sold to the retail supermarket channel are soft pretzel products – including SUPERPRETZEL, frozen novelties including LUIGI’S Real Italian Ice, MINUTE MAID Juice Bars and Soft Frozen Lemonade, WHOLE FRUIT frozen fruit bars and sorbet, DOGSTERS ice cream style treats for dogs, 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.

 

13

 

Frozen Beverages

 

We sell frozen beverages to the foodservice industry primarily under the names ICEE, SLUSH PUPPIE and PARROT ICE in the United States, Mexico and Canada. We also provide repair and maintenance services to customers for customer-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

   

Nine months ended

 
   

June 29,

   

June 24,

   

June 29,

   

June 24,

 
   

2024

   

2023

   

2024

   

2023

 

Sales to external customers:

                               

Food Service

                               

Soft pretzels

  $ 59,529     $ 63,527     $ 163,985     $ 171,242  

Frozen novelties

    51,701       47,410       100,464       95,782  

Churros

    30,269       30,470       89,155       81,147  

Handhelds

    21,300       17,003       62,851       60,884  

Bakery

    93,566       87,582       287,455       281,830  

Other

    8,081       8,988       19,135       20,673  

Total Food Service

  $ 264,446     $ 254,980     $ 723,045     $ 711,558  
                                 

Retail Supermarket

                               

Soft pretzels

  $ 11,110     $ 10,269     $ 46,010     $ 40,767  

Frozen novelties

    46,210       41,684       82,747       80,423  

Biscuits

    4,839       5,135       18,078       18,906  

Handhelds

    7,562       4,452       20,266       11,443  

Coupon redemption

    (931 )     (385 )     (2,032 )     (936 )

Other

    (67 )     (5 )     303       (20 )

Total Retail Supermarket

  $ 68,723     $ 61,150     $ 165,372     $ 150,583  
                                 

Frozen Beverages

                               

Beverages

  $ 72,092     $ 72,878     $ 158,708     $ 153,336  

Repair and maintenance service

    23,748       24,144       71,538       70,556  

Machines revenue

    9,769       11,554       26,879       26,817  

Other

    1,179       1,063       2,457       2,116  

Total Frozen Beverages

  $ 106,788     $ 109,639     $ 259,582     $ 252,825  
                                 

Consolidated sales

  $ 439,957     $ 425,769     $ 1,147,999     $ 1,114,966  
                                 

Depreciation and amortization:

                               

Food Service

  $ 12,130     $ 9,797     $ 33,976     $ 28,852  

Retail Supermarket

    396       540       1,448       1,423  

Frozen Beverages

    5,667       5,426       16,961       16,109  

Total depreciation and amortization

  $ 18,193     $ 15,763     $ 52,385     $ 46,384  
                                 

Operating Income:

                               

Food Service

  $ 20,247     $ 20,786     $ 34,194     $ 32,306  

Retail Supermarket

    7,812       4,168       13,374       5,766  

Frozen Beverages

    22,057       23,340       30,135       29,743  

Total operating income

  $ 50,116     $ 48,294     $ 77,703     $ 67,815  
                                 

Capital expenditures:

                               

Food Service

  $ 12,717     $ 20,015     $ 33,946     $ 58,621  

Retail Supermarket

    -       345       2       1,824  

Frozen Beverages

    7,028       6,988       22,423       16,027  

Total capital expenditures

  $ 19,745     $ 27,348     $ 56,371     $ 76,472  
                                 

Assets: