UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the period ended June 30, 201829, 2019
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, NJNew 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.
X | Yes |
|
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
X | Yes |
|
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-2152-2 of the Exchange Act.
Large Accelerated filer | (X) | 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-2bob-2 of the Exchange Act).
Yes X No
| Yes | X | No |
As July 26, 201825, 2019, there were 18,716,14018,840,904 shares of the Registrant’s Common Stock outstanding.
INDEX
Page | ||||
Number | ||||
Part I. | Financial Information | |||
Item l. | Consolidated Financial Statements | |||
Consolidated Balance Sheets – June | 3 | |||
Consolidated Statements of Earnings (unaudited) | 4 | |||
| ||||
Consolidated Statements of Comprehensive Income (unaudited) – Three and nine months Ended June | 5 | |||
| ||||
Consolidated Statements of Changes In Stockholders’ Equity (unaudited) – Nine months Ended June 29, 2019 and June 30, 2018 | 6 | |||
Consolidated Statements of Cash Flows (unaudited) – Nine months Ended June |
| |||
Notes to the Consolidated Financial Statements (unaudited) |
| |||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| ||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
| ||
Item 4. | Controls and Procedures |
| ||
| ||||
Part II. | Other Information | |||
| ||||
| Item 6. | Exhibits | 29 | |
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|
J & J SNACK FOODS CORP. AND SUBSIDIARIES |
CONSOLIDATED BALANCE SHEETS |
(in thousands, except share amounts) |
June 29, | September 29, | |||||||
2019 | 2018 | |||||||
(unaudited) | ||||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 156,097 | $ | 111,479 | ||||
Marketable securities held to maturity | 40,809 | 21,048 | ||||||
Accounts receivable, net | 146,553 | 132,342 | ||||||
Inventories | 119,190 | 112,884 | ||||||
Prepaid expenses and other | 4,146 | 5,044 | ||||||
Total current assets | 466,795 | 382,797 | ||||||
Property, plant and equipment, at cost | ||||||||
Land | 2,494 | 2,494 | ||||||
Buildings | 26,582 | 26,582 | ||||||
Plant machinery and equipment | 307,787 | 290,396 | ||||||
Marketing equipment | 307,077 | 290,955 | ||||||
Transportation equipment | 9,534 | 8,929 | ||||||
Office equipment | 30,958 | 30,752 | ||||||
Improvements | 39,761 | 38,941 | ||||||
Construction in progress | 12,978 | 8,468 | ||||||
Total Property, plant and equipment, at cost | 737,171 | 697,517 | ||||||
Less accumulated depreciation and amortization | 486,519 | 454,844 | ||||||
Property, plant and equipment, net | 250,652 | 242,673 | ||||||
Other assets | ||||||||
Goodwill | 102,511 | 102,511 | ||||||
Other intangible assets, net | 55,721 | 57,762 | ||||||
Marketable securities held to maturity | 96,064 | 118,765 | ||||||
Marketable securities available for sale | 21,032 | 24,743 | ||||||
Other | 2,915 | 2,762 | ||||||
Total other assets | 278,243 | 306,543 | ||||||
Total Assets | $ | 995,690 | $ | 932,013 | ||||
Liabilities and Stockholders' Equity | ||||||||
Current Liabilities | ||||||||
Current obligations under capital leases | $ | 330 | $ | 324 | ||||
Accounts payable | 80,237 | 69,592 | ||||||
Accrued insurance liability | 9,281 | 11,217 | ||||||
Accrued liabilities | 14,098 | 8,031 | ||||||
Accrued compensation expense | 17,177 | 20,297 | ||||||
Dividends payable | 9,413 | 8,438 | ||||||
Total current liabilities | 130,536 | 117,899 | ||||||
Long-term obligations under capital leases | 714 | 753 | ||||||
Deferred income taxes | 53,009 | 52,322 | ||||||
Other long-term liabilities | 1,764 | 1,948 | ||||||
Stockholders' Equity | ||||||||
Preferred stock, $1 par value; authorized 10,000,000 shares; none issued | - | - | ||||||
Common stock, no par value; authorized, 50,000,000 shares; issued and outstanding 18,830,000 and 18,754,000 respectively | 37,840 | 27,340 | ||||||
Accumulated other comprehensive loss | (12,548 | ) | (11,994 | ) | ||||
Retained Earnings | 784,375 | 743,745 | ||||||
Total stockholders' equity | 809,667 | 759,091 | ||||||
Total Liabilities and Stockholders' Equity | $ | 995,690 | $ | 932,013 |
The accompanying notes are an integral part of these statements. |
J & J SNACK FOODS CORP. AND SUBSIDIARIES |
CONSOLIDATED |
(Unaudited) |
(in thousands, except per share amounts) |
June 30, | September 30, | |||||||
2018 | 2017 | |||||||
(unaudited) | ||||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 95,628 | $ | 90,962 | ||||
Marketable securities held to maturity | 30,271 | 59,113 | ||||||
Accounts receivable, net | 131,776 | 124,553 | ||||||
Inventories | 116,194 | 103,268 | ||||||
Prepaid expenses and other | 6,857 | 3,936 | ||||||
Total current assets | 380,726 | 381,832 | ||||||
Property, plant and equipment, at cost | ||||||||
Land | 2,494 | 2,482 | ||||||
Buildings | 26,582 | 26,741 | ||||||
Plant machinery and equipment | 279,077 | 257,172 | ||||||
Marketing equipment | 285,689 | 278,860 | ||||||
Transportation equipment | 8,648 | 8,449 | ||||||
Office equipment | 27,948 | 25,302 | ||||||
Improvements | 38,657 | 38,003 | ||||||
Construction in progress | 13,174 | 16,880 | ||||||
Total Property, plant and equipment, at cost | 682,269 | 653,889 | ||||||
Less accumulated depreciation and amortization | 445,001 | 426,308 | ||||||
Property, plant and equipment, net | 237,268 | 227,581 | ||||||
Other assets | ||||||||
Goodwill | 102,511 | 102,511 | ||||||
Other intangible assets, net | 58,646 | 61,272 | ||||||
Marketable securities held to maturity | 103,548 | 60,908 | ||||||
Marketable securities available for sale | 28,908 | 30,260 | ||||||
Other | 2,625 | 2,864 | ||||||
Total other assets | 296,238 | 257,815 | ||||||
Total Assets | $ | 914,232 | $ | 867,228 | ||||
Liabilities and Stockholders' Equity | ||||||||
Current Liabilities | ||||||||
Current obligations under capital leases | $ | 336 | $ | 340 | ||||
Accounts payable | 79,489 | 72,729 | ||||||
Accrued insurance liability | 11,929 | 10,558 | ||||||
Accrued liabilities | 7,770 | 7,753 | ||||||
Accrued compensation expense | 15,147 | 19,826 | ||||||
Dividends payable | 8,415 | 7,838 | ||||||
Total current liabilities | 123,086 | 119,044 | ||||||
Long-term obligations under capital leases | 833 | 904 | ||||||
Deferred income taxes | 50,228 | 62,705 | ||||||
Other long-term liabilities | 2,010 | 2,253 | ||||||
Stockholders' Equity | ||||||||
Preferred stock, $1 par value; authorized 10,000,000 shares; none issued | - | - | ||||||
Common stock, no par value; authorized, 50,000,000 shares; issued and outstanding 18,697,000 and 18,705,000 respectively | 23,047 | 17,382 | ||||||
Accumulated other comprehensive loss | (13,770 | ) | (8,875 | ) | ||||
Retained Earnings | 728,798 | 673,815 | ||||||
Total stockholders' equity | 738,075 | 682,322 | ||||||
Total Liabilities and Stockholders' Equity | $ | 914,232 | $ | 867,228 |
Three months ended | Nine months ended | |||||||||||||||
June 29, | June 30, | June 29, | June 30, | |||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net Sales | $ | 326,701 | $ | 306,239 | $ | 874,615 | $ | 837,550 | ||||||||
Cost of goods sold(1) | 225,352 | 211,764 | 617,155 | 592,518 | ||||||||||||
Gross Profit | 101,349 | 94,475 | 257,460 | 245,032 | ||||||||||||
Operating expenses | ||||||||||||||||
Marketing (2) | 26,398 | 25,589 | 69,792 | 69,672 | ||||||||||||
Distribution (3) | 24,447 | 24,325 | 70,521 | 67,901 | ||||||||||||
Administrative (4) | 10,668 | 9,654 | 29,909 | 28,014 | ||||||||||||
Other general expense (income) | 794 | 38 | 1,343 | (193 | ) | |||||||||||
Total operating expenses | 62,307 | 59,606 | 171,565 | 165,394 | ||||||||||||
Operating Income | 39,042 | 34,869 | 85,895 | 79,638 | ||||||||||||
Other income (expense) | ||||||||||||||||
Investment income | 1,953 | 1,705 | 5,775 | 4,687 | ||||||||||||
Interest expense & other | 1,972 | (209 | ) | 1,920 | 267 | |||||||||||
Earnings before income taxes | 42,967 | 36,365 | 93,590 | 84,592 | ||||||||||||
Income taxes | 12,095 | 10,236 | 24,838 | 4,381 | ||||||||||||
NET EARNINGS | $ | 30,872 | $ | 26,129 | $ | 68,752 | $ | 80,211 | ||||||||
Earnings per diluted share | $ | 1.63 | $ | 1.39 | $ | 3.64 | $ | 4.27 | ||||||||
Weighted average number of diluted shares | 18,947 | 18,822 | 18,912 | 18,801 | ||||||||||||
Earnings per basic share | $ | 1.64 | $ | 1.40 | $ | 3.66 | $ | 4.29 | ||||||||
Weighted average number of basic shares | 18,823 | 18,698 | 18,794 | 18,683 |
(1) | Includes share-based compensation expense of $271 and $735 for the three months and nine months ended June 29, 2019, respectively and $225 and $642 for the three months and nine months ended June 30, 2018. |
(2) | Includes share-based compensation expense of $391 and $1,061 for the three months and nine months ended June 29, 2019, respectively and $349 and $998 for the three months and nine months ended June 30, 2018. |
(3) | Includes share-based compensation expense of $24 and $65 for the three months and nine months ended June 29, 2019,, respectively and $20 and $56 for the three months and nine months ended June 30, 2018. |
(4) | Includes share-based compensation expense of $435 and $1,191 for the three months and nine months ended June 29, 2019, respectively and $412 and $1,178 for the three months and nine months ended June 30, 2018. |
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 | Nine months ended | |||||||||||||||
June 29, | June 30, | June 29, | June 30, | |||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net Earnings | $ | 30,872 | $ | 26,129 | $ | 68,752 | $ | 80,211 | ||||||||
Foreign currency translation adjustments | 496 | (2,359 | ) | (469 | ) | (4,348 | ) | |||||||||
Unrealized holding loss on marketable securities | - | (253 | ) | - | (547 | ) | ||||||||||
Total Other Comprehensive Income(loss) | 496 | (2,612 | ) | (469 | ) | (4,895 | ) | |||||||||
Comprehensive Income | $ | 31,368 | $ | 23,517 | $ | 68,283 | $ | 75,316 |
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 at September 29, 2018 | 18,754 | $ | 27,340 | $ | (11,994 | ) | $ | 743,745 | $ | 759,091 | ||||||||||
Issuance of common stock upon exercise of stock options | 20 | 1,704 | - | - | 1,704 | |||||||||||||||
Foreign currency translation adjustment | - | - | (1,359 | ) | - | (1,359 | ) | |||||||||||||
Reclass from accumulated other comprehensive gain | - | - | (85 | ) | 85 | - | ||||||||||||||
Dividends declared | - | - | - | (9,389 | ) | (9,389 | ) | |||||||||||||
Share-based compensation | - | 972 | - | - | 972 | |||||||||||||||
Repurchase of common stock | - | - | - | - | - | |||||||||||||||
Net earnings | - | - | - | 17,526 | 17,526 | |||||||||||||||
Balance at December 29, 2018 | 18,774 | $ | 30,016 | $ | (13,438 | ) | $ | 751,967 | $ | 768,545 | ||||||||||
Issuance of common stock upon exercise of stock options | 34 | 3,451 | - | - | 3,451 | |||||||||||||||
Issuance of common stock for employee stock purchase plan | 6 | 772 | - | - | 772 | |||||||||||||||
Foreign currency translation adjustment | - | - | 394 | - | 394 | |||||||||||||||
Issuance of common stock under deferred stock plan | 1 | 90 | - | - | 90 | |||||||||||||||
Dividends declared | - | - | - | (9,405 | ) | (9,405 | ) | |||||||||||||
Share-based compensation | - | 914 | - | - | 914 | |||||||||||||||
Repurchase of common stock | - | - | - | - | - | |||||||||||||||
Net earnings | - | - | - | 20,354 | 20,354 | |||||||||||||||
Balance at March 30, 2019 | 18,815 | $ | 35,243 | $ | (13,044 | ) | $ | 762,916 | $ | 785,115 | ||||||||||
Issuance of common stock upon exercise of stock options | 15 | 1,499 | - | - | 1,499 | |||||||||||||||
Foreign currency translation adjustment | - | - | 496 | - | 496 | |||||||||||||||
Dividends declared | - | - | - | (9,413 | ) | (9,413 | ) | |||||||||||||
Share-based compensation | - | 1,098 | - | - | 1,098 | |||||||||||||||
Repurchase of common stock | - | - | - | - | - | |||||||||||||||
Net earnings | - | - | - | 30,872 | 30,872 | |||||||||||||||
Balance at June 29, 2019 | 18,830 | $ | 37,840 | $ | (12,548 | ) | $ | 784,375 | $ | 809,667 |
J & J SNACK FOODS CORP. AND SUBSIDIARIES | |
CONSOLIDATED STATEMENTS OF | |
| |
(in |
Three months ended | Nine months ended | |||||||||||||||
June 30, | June 24, | June 30, | June 24, | |||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Net Sales | $ | 306,239 | $ | 295,415 | $ | 837,550 | $ | 767,498 | ||||||||
Cost of goods sold(1) | 211,764 | 200,651 | 592,518 | 534,022 | ||||||||||||
Gross Profit | 94,475 | 94,764 | 245,032 | 233,476 | ||||||||||||
Operating expenses | ||||||||||||||||
Marketing (2) | 25,589 | 25,571 | 69,672 | 67,435 | ||||||||||||
Distribution (3) | 24,325 | 21,865 | 67,901 | 58,537 | ||||||||||||
Administrative (4) | 9,654 | 9,588 | 28,014 | 26,404 | ||||||||||||
Other general expense (income) | 38 | (60 | ) | (193 | ) | (138 | ) | |||||||||
Total operating expenses | 59,606 | 56,964 | 165,394 | 152,238 | ||||||||||||
Operating Income | 34,869 | 37,800 | 79,638 | 81,238 | ||||||||||||
Other income (expense) | ||||||||||||||||
Investment income | 1,705 | 1,422 | 4,687 | 3,824 | ||||||||||||
Interest expense & other | (209 | ) | (80 | ) | 267 | (651 | ) | |||||||||
Earnings before income taxes | 36,365 | 39,142 | 84,592 | 84,411 | ||||||||||||
Income taxes | 10,236 | 13,838 | 4,381 | 29,580 | ||||||||||||
NET EARNINGS | $ | 26,129 | $ | 25,304 | $ | 80,211 | $ | 54,831 | ||||||||
Earnings per diluted share | $ | 1.39 | $ | 1.34 | $ | 4.27 | $ | 2.91 | ||||||||
Weighted average number of diluted shares | 18,822 | 18,846 | 18,801 | 18,818 | ||||||||||||
Earnings per basic share | $ | 1.40 | $ | 1.35 | $ | 4.29 | $ | 2.93 | ||||||||
Weighted average number of basic shares | 18,698 | 18,727 | 18,683 | 18,708 |
Accumulated | ||||||||||||||||||||
Other | ||||||||||||||||||||
Common Stock | Comprehensive | Retained | ||||||||||||||||||
Shares | Amount | Loss | Earnings | Total | ||||||||||||||||
Balance at September 30, 2017 | 18,663 | $ | 17,382 | $ | (8,875 | ) | $ | 673,815 | $ | 682,322 | ||||||||||
Issuance of common stock upon exercise of stock options | 5 | 253 | - | - | 253 | |||||||||||||||
Foreign currency translation adjustment | - | - | (3,887 | ) | - | (3,887 | ) | |||||||||||||
Unrealized holding loss on marketable securities | - | - | (110 | ) | - | (110 | ) | |||||||||||||
Issuance of common stock under deferred stock plan | - | 2 | - | - | 2 | |||||||||||||||
Dividends declared | - | - | - | (8,400 | ) | (8,400 | ) | |||||||||||||
Share-based compensation | - | 952 | - | - | 952 | |||||||||||||||
Repurchase of common stock | - | - | - | - | - | |||||||||||||||
Net earnings | - | - | - | 36,249 | 36,249 | |||||||||||||||
Balance at December 30, 2017 | 18,668 | $ | 18,589 | $ | (12,872 | ) | $ | 701,664 | $ | 707,381 | ||||||||||
Issuance of common stock upon exercise of stock options | 21 | 1,951 | - | - | 1,951 | |||||||||||||||
Issuance of common stock for employee stock purchase plan | 7 | 756 | - | - | 756 | |||||||||||||||
Foreign currency translation adjustment | - | - | 1,898 | - | 1,898 | |||||||||||||||
Unrealized holding loss on marketable securities | - | - | (184 | ) | - | (184 | ) | |||||||||||||
Issuance of common stock under deferred stock plan | 1 | 92 | - | - | 92 | |||||||||||||||
Dividends declared | - | - | - | (8,413 | ) | (8,413 | ) | |||||||||||||
Share-based compensation | - | 868 | - | - | 868 | |||||||||||||||
Repurchase of common stock | - | - | - | - | - | |||||||||||||||
Net earnings | - | - | - | 17,833 | 17,833 | |||||||||||||||
Balance at March 31, 2018 | 18,697 | $ | 22,256 | $ | (11,158 | ) | $ | 711,084 | $ | 722,182 | ||||||||||
Issuance of common stock upon exercise of stock options | 29 | 2,601 | - | - | 2,601 | |||||||||||||||
Foreign currency translation adjustment | - | - | (2,359 | ) | - | (2,359 | ) | |||||||||||||
Unrealized holding loss on marketable securities | - | - | (253 | ) | - | (253 | ) | |||||||||||||
Issuance of common stock under deferred stock plan | - | 2 | - | - | 2 | |||||||||||||||
Dividends declared | - | - | - | (8,415 | ) | (8,415 | ) | |||||||||||||
Share-based compensation | - | 982 | - | - | 982 | |||||||||||||||
Repurchase of common stock | (21 | ) | (2,794 | ) | - | - | (2,794 | ) | ||||||||||||
Net earnings | - | - | - | 26,129 | 26,129 | |||||||||||||||
Balance at June 30, 2018 | 18,705 | $ | 23,047 | $ | (13,770 | ) | $ | 728,798 | $ | 738,075 |
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CONSOLIDATED STATEMENTS OF |
(Unaudited) |
|
Three months ended | Nine months ended | |||||||||||||||
June 30, | June 24, | June 30, | June 24, | |||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Net Earnings | $ | 26,129 | $ | 25,304 | $ | 80,211 | $ | 54,831 | ||||||||
Foreign currency translation adjustments | (2,359 | ) | 1,095 | (4,348 | ) | 1,885 | ||||||||||
Unrealized holding (loss) gain on marketable securities | (253 | ) | 204 | (547 | ) | 699 | ||||||||||
Total Other Comprehensive (Loss) Income | (2,612 | ) | 1,299 | (4,895 | ) | 2,584 | ||||||||||
Comprehensive Income | $ | 23,517 | $ | 26,603 | $ | 75,316 | $ | 57,415 |
Nine months ended | ||||||||
June 29, | June 30, | |||||||
2019 | 2018 | |||||||
Operating activities: | ||||||||
Net earnings | $ | 68,752 | $ | 80,211 | ||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||
Depreciation of property, plant and equipment | 33,374 | 31,929 | ||||||
Amortization of intangibles and deferred costs | 2,586 | 2,639 | ||||||
Share-based compensation | 3,006 | 2,874 | ||||||
Deferred income taxes | 690 | (12,502 | ) | |||||
Loss on marketable securities | 410 | 32 | ||||||
Other | 350 | (3 | ) | |||||
Changes in assets and liabilities net of effects from purchase of companies | ||||||||
Increase in accounts receivable | (14,289 | ) | (7,530 | ) | ||||
Increase in inventories | (6,257 | ) | (13,020 | ) | ||||
Decrease (increase) in prepaid expenses | 957 | (2,949 | ) | |||||
Increase in accounts payable and accrued liabilities | 11,584 | 3,606 | ||||||
Net cash provided by operating activities | $ | 101,163 | 85,287 | |||||
Investing activities: | ||||||||
Payment for purchases of companies, net of cash acquired | (1,155 | ) | - | |||||
Purchases of property, plant and equipment | (42,136 | ) | (43,344 | ) | ||||
Purchases of marketable securities | (24,056 | ) | (65,227 | ) | ||||
Proceeds from redemption and sales of marketable securities | 29,721 | 51,417 | ||||||
Proceeds from disposal of property, plant and equipment | 1,463 | 1,895 | ||||||
Other | (212 | ) | 171 | |||||
Net cash used in investing activities | (36,375 | ) | (55,088 | ) | ||||
Financing activities: | ||||||||
Payments to repurchase common stock | - | (2,794 | ) | |||||
Proceeds from issuance of stock | 7,426 | 5,561 | ||||||
Payments on capitalized lease obligations | (33 | ) | (278 | ) | ||||
Payment of cash dividend | (27,230 | ) | (24,652 | ) | ||||
Net cash used in financing activities | (19,837 | ) | (22,163 | ) | ||||
Effect of exchange rate on cash and cash equivalents | (333 | ) | (3,370 | ) | ||||
Net increase in cash and cash equivalents | $ | 44,618 | $ | 4,666 | ||||
Cash and cash equivalents at beginning of period | 111,479 | 90,962 | ||||||
Cash and cash equivalents at end of period | $ | 156,097 | $ | 95,628 |
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|
Nine months ended | ||||||||
June 30, | June 24, | |||||||
2018 | 2017 | |||||||
Operating activities: | ||||||||
Net earnings | $ | 80,211 | $ | 54,831 | ||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||
Depreciation of property, plant and equipment | 31,929 | 28,060 | ||||||
Amortization of intangibles and deferred costs | 2,639 | 3,336 | ||||||
Share-based compensation | 2,874 | 2,240 | ||||||
Deferred income taxes | (12,502 | ) | (347 | ) | ||||
Loss(gain)on sale and redemption of marketable securities | 32 | (13 | ) | |||||
Other | (3 | ) | 712 | |||||
Changes in assets and liabilities net of effects from purchase of companies | ||||||||
Increase in accounts receivable | (7,530 | ) | (23,385 | ) | ||||
Increase in inventories | (13,020 | ) | (12,154 | ) | ||||
(Increase)decrease in prepaid expenses | (2,949 | ) | 10,035 | |||||
Increase in accounts payable and accrued liabilities | 3,606 | 20,023 | ||||||
Net cash provided by operating activities | 85,287 | 83,338 | ||||||
Investing activities: | ||||||||
Payment for purchases of companies, net of cash acquired | - | (42,058 | ) | |||||
Purchases of property, plant and equipment | (43,344 | ) | (57,151 | ) | ||||
Purchases of marketable securities | (65,227 | ) | (27,269 | ) | ||||
Proceeds from redemption and sales of marketable securities | 51,417 | 14,681 | ||||||
Proceeds from disposal of property, plant and equipment | 1,895 | 1,385 | ||||||
Other | 171 | (404 | ) | |||||
Net cash used in investing activities | (55,088 | ) | (110,816 | ) | ||||
Financing activities: | ||||||||
Payments to repurchase common stock | (2,794 | ) | (3,374 | ) | ||||
Proceeds from issuance of stock | 5,561 | 4,745 | ||||||
Payments on capitalized lease obligations | (278 | ) | (273 | ) | ||||
Payment of cash dividend | (24,652 | ) | (22,992 | ) | ||||
Net cash used in financing activities | (22,163 | ) | (21,894 | ) | ||||
Effect of exchange rate on cash and cash equivalents | (3,370 | ) | 1,334 | |||||
Net increase (decrease) in cash and cash equivalents | 4,666 | (48,038 | ) | |||||
Cash and cash equivalents at beginning of period | 90,962 | 140,652 | ||||||
Cash and cash equivalents at end of period | $ | 95,628 | $ | 92,614 |
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 |
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 nine months ended June 29, 2019 and June 30, 2018 and June 24, 2017 are not necessarily indicative of results for the full year. Sales of our frozen beverages and frozen juicesjuice bars and ices are generally higher in the third and fourth quarters due to warmer weather.
Certain prior year financial statement amounts have been reclassified to be consistent with the presentation for the current year.
While we believe that the disclosures presented are adequate to make the information not misleading, it is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes included in the Company’s Annual Report on Form 10-K10-K for the fiscal year ended September 30, 2017.29, 2018.
Note 2
Revenue Recognition
We adopted the new revenue recognition guidance on the first day of our fiscal 2019 year using a modified retrospective approach; however, we did not record a cumulative-effect adjustment from initially applying the standard as the adoption did not have a material impact on our financial position or results of operations. We completed a review of customer contracts and evaluated the impact of the new standard on certain common practices currently employed by us. We also finalized our assessment of the impact on our accounting policies, processes, system requirements, internal controls and disclosures.
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. 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.
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 liability on our balance sheet as follows:
Three Months Ended | Nine Months Ended | |||||||
June 29, 2019 | June 29, 2019 | |||||||
(unaudited) | (unaudited) | |||||||
(in thousands) | (in thousands) | |||||||
Beginning Balance | $ | 1,655 | $ | 1,865 | ||||
Additions to contract liability | 1,271 | 4,299 | ||||||
Amounts recognized as revenue | (1,499 | ) | (4,737 | ) | ||||
Ending Balance | $ | 1,427 | $ | 1,427 |
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. The allowance for doubtful receivables was $665,000 and $400,000 at June 29, 2019 and September 29, 2018, 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 |
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 June 29, 2019 | ||||||||||||
Income | Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
(in thousands, except per share amounts) | ||||||||||||
Basic EPS | ||||||||||||
Net Earnings available to common stockholders | $ | 30,872 | 18,823 | $ | 1.64 | |||||||
Effect of Dilutive Securities | ||||||||||||
Options | - | 124 | (0.01 | ) | ||||||||
Diluted EPS | ||||||||||||
Net Earnings available to common stockholders plus assumed conversions | $ | 30,872 | 18,947 | $ | 1.63 |
163,170 anti-dilutive shares have been excluded in the computation of EPS for the three months ended June 29, 2019.
Nine Months Ended June 29, 2019 | ||||||||||||
Income | Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
(in thousands, except per share amounts) | ||||||||||||
Basic EPS | ||||||||||||
Net Earnings available to common stockholders | $ | 68,752 | 18,794 | $ | 3.66 | |||||||
Effect of Dilutive Securities | ||||||||||||
Options | - | 118 | (0.02 | ) | ||||||||
Diluted EPS | ||||||||||||
Net Earnings available to common stockholders plus assumed conversions | $ | 68,752 | 18,912 | $ | 3.64 |
163,670 anti-dilutive shares have been excluded in the computation of EPS for the nine months ended June 29, 2019.
Three Months Ended June 30, 2018 | ||||||||||||
Income | Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
(in thousands, except per share amounts) | ||||||||||||
Basic EPS | ||||||||||||
Net Earnings available to common stockholders | $ | 26,129 | 18,698 | $ | 1.40 | |||||||
Effect of Dilutive Securities | ||||||||||||
Options | - | 124 | (0.01 | ) | ||||||||
Diluted EPS | ||||||||||||
Net Earnings available to common stockholders plus assumed conversions | $ | 26,129 | 18,822 | $ | 1.39 |
1,000 anti-dilutive shares have been excluded in the computation of EPS for the three months ended June 30, 2018.
Nine Months Ended June 30, 2018 | ||||||||||||
Income | Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
(in thousands, except per share amounts) | ||||||||||||
Basic EPS | ||||||||||||
Net Earnings available to common stockholders | $ | 80,211 | 18,683 | $ | 4.29 | |||||||
Effect of Dilutive Securities | ||||||||||||
Options | - | 118 | (0.02 | ) | ||||||||
Diluted EPS | ||||||||||||
Net Earnings available to common stockholders plus assumed conversions | $ | 80,211 | 18,801 | $ | 4.27 |
1,000 anti-dilutive shares have been excluded in the computation of EPS for the nine months ended June 30, 2018.
Three Months Ended June 24, 2017 | ||||||||||||
Income | Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
(in thousands, except per share amounts) | ||||||||||||
Basic EPS | ||||||||||||
Net Earnings available to common stockholders | $ | 25,304 | 18,727 | $ | 1.35 | |||||||
Effect of Dilutive Securities | ||||||||||||
Options | - | 119 | (0.01 | ) | ||||||||
Diluted EPS | ||||||||||||
Net Earnings available to common stockholders plus assumed conversions | $ | 25,304 | 18,846 | $ | 1.34 |
500 anti-dilutive shares have been excluded in the computation of EPS for the three months ended June 24, 2017.
Nine Months Ended June 24, 2017 | ||||||||||||
Income | Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
(in thousands, except per share amounts) | ||||||||||||
Basic EPS | ||||||||||||
Net Earnings available to common stockholders | $ | 54,831 | 18,708 | $ | 2.93 | |||||||
Effect of Dilutive Securities | ||||||||||||
Options | - | 110 | (0.02 | ) | ||||||||
Diluted EPS | ||||||||||||
Net Earnings available to common stockholders plus assumed conversions | $ | 54,831 | 18,818 | $ | 2.91 |
158,494 anti-dilutive shares have been excluded in the computation of EPS for the nine months ended June 24, 2017
Note 5 | At June |
Three months ended | Nine months ended | |||||||||||||||
June 29, | June 30, | June 29, | June 30, | |||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
(in thousands) | ||||||||||||||||
Stock Options | $ | 663 | $ | 473 | $ | 1,741 | $ | 1,559 | ||||||||
Stock purchase plan | 187 | 89 | 324 | 355 | ||||||||||||
Stock issued to an outside director | 17 | 16 | 50 | 48 | ||||||||||||
Restricted stock issued to an employee | - | 1 | - | 3 | ||||||||||||
Total share-based compensation | $ | 867 | $ | 579 | $ | 2,115 | $ | 1,965 | ||||||||
The above compensation is net of tax benefits | $ | 254 | $ | 427 | $ | 937 | $ | 909 |
Three months ended | Nine months ended | |||||||||||||||
June 30, | June 24, | June 30, | June 24, | |||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Stock Options | $ | 473 | $ | (20 | ) | $ | 1,559 | $ | (165 | ) | ||||||
Stock purchase plan | 89 | 65 | 355 | 300 | ||||||||||||
Stock issued to an outside director | 16 | 14 | 48 | 42 | ||||||||||||
Restricted stock issued to an employee | 1 | 1 | 3 | 3 | ||||||||||||
Total share-based compensation | $ | 579 | $ | 60 | $ | 1,965 | $ | 180 | ||||||||
The above compensation is net of tax benefits | $ | 427 | $ | 751 | $ | 909 | $ | 2,060 |
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 2018 first 2019nine months: expected volatility of 16.8%; risk-free interest rate of 2.6%2.2%; dividend rate of 1.3%1.2% and expected lives of 5 years.
During the fiscal year 2019nine month period, the Company granted 165,170 stock options. The weighted-average grant date fair value of these options was $26.29.
During the fiscal year 2018nine month period, the Company granted 159,878 stock options. The weighted-average grant date fair value of these options was $23.67.
During the fiscal year 2017 nine month period, the Company granted 159,294 stock options. The weighted-average grant date fair value of these options was $18.85.
Expected volatility is based on the historical volatility of the price of our common shares over the past 5051 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 |
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 $389,000$409,000 and $374,000$394,000 on June 30,29, 2019 and September 29, 2018, and September 30, 2017, 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 30,29, 2019, and September 29, 2018, and September 30, 2017, respectively, the Company has $254,000$274,000 and $239,000$259,000 of accrued interest and penalties.
In addition to our federal tax return and tax returns for Mexico and Canada, we file tax returns in all states that have a corporate income tax with virtually all open for examination for three to four years.
Net earnings for the last year’s nine months ended June 30, 2018 benefited from a $20.9 million or $1.11 per diluted share, gain on the remeasurement of deferred tax liabilities andwhich was partially offset by a $7.4$1.2 million or $0.40 per diluted share, reduction in income taxes related primarily toprovision for the lower corporateone time repatriation tax, rate enacted underboth of which resulted from the Tax Cuts and Jobs Act enacted in December 2017. Net earnings for the nine months were impacted by a $1.2 million, or $.06 per diluted share, provision for the one time repatriation tax required under the new tax law. For the three months ended June 30, 2018, net earnings benefited by a $3.5 million, or $.18 per diluted share, reduction in income taxes primarily related to the lower corporate tax rate. Excluding the deferred tax gain and the one-timeone time repatriation tax, our effective tax rate decreased to 28.1% from 35.4%was 28.4% in last year’s nine months. Net earnings in this year’s nine months benefitted by a reduction of approximately $900,000 in tax as the priorprovision for the one time repatriation tax was reduced as the amount recorded last year quarter and to 28.4% from 35.0% in prior year nine months reflectingwas an estimate. Excluding the reduction in the federal statutory rate to 21% from 35% on January 1, 2018. Last year’s nine months’provision for the one time repatriation tax, our effective tax rate benefited from an unusually high tax benefit on share based compensation of $2,060,000 which compares towas 27.5% in this year’s nine month’s tax benefit of $909,000. We are presently estimating an effective tax rate of 28-29% for the last quarter of our fiscal year 2018 and 26-27% for our fiscal year 2019. months.
On December 22, 2017, the SEC issued guidance under Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) directing taxpayers to consider the impact of the U.S. legislation as “provisional” when it does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the change in tax law. In accordance with SAB 118, the estimated income tax net benefit of $3.5 million for the three months and $27.1 million for the nine months represents our best estimate based on interpretation of the U.S. legislation as we are still accumulating data to finalize the underlying calculations, or in certain cases, the U.S. Treasury is expected to issue further guidance on the application of certain provisions of the U.S. legislation. In accordance with SAB 118, the additional estimated income tax net benefit of $3.5 million for the three months and $27.1 million for the nine months are considered provisional and will be finalized before December 22, 2018.
Note 7 | In May 2014 and in subsequent updates, the FASB issued guidance on revenue recognition which requires that we recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration which we expect to be entitled in exchange for those goods or services. We |
In January 2016, the FASB issued guidance which requires an entity to measure equity investments at fair value with changes in fair value recognized in net income, to use the price that would be received by a seller when measuring the fair value of financial instruments for disclosure purposes, and which eliminates the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. Under presentprior guidance, changes in fair value of equity investments areavailable for sale were recognized in Stockholders’ Equity. ThisWe adopted this guidance is effective foron the first day of our 2019fiscal year ended September 2019. Early adoption is not permitted. We do not anticipate that theyear. The adoption of this new guidance will have a material impact on our consolidated financial statements.statements was not material.
In February 2016, the FASB issued guidance on lease accounting which requires that an entity recognize most leases on its balance sheet. The guidance retains a dual lease accounting model for purposes of income statement recognition, continuing the distinction between what are currently known as “capital” and “operating” leases for lessees. This guidance is effective for our fiscal year ended September 2020. While we continue to evaluate the effect of adopting this guidance on our consolidated financial statements and related disclosures, we expect our operating leases will be subject to the new standard. We will recognize right-of-use assets and operating lease liabilities on our consolidated balance sheets upon adoption, which will increase our total assets and liabilities. We anticipate that the impact of this guidance on our financial statements will be material.
Note 8 Inventories consist of the following:
June 29, | September 29, | |||||||
2019 | 2018 | |||||||
(unaudited) | ||||||||
(in thousands) | ||||||||
Finished goods | $ | 55,282 | $ | 52,221 | ||||
Raw materials | 22,910 | 23,173 | ||||||
Packaging materials | 10,754 | 9,780 | ||||||
Equipment parts and other | 30,244 | 27,710 | ||||||
Total Inventories | $ | 119,190 | $ | 112,884 |
Note |
|
June 30, | September 30, | |||||||
2018 | 2017 | |||||||
(unaudited) | ||||||||
(in thousands) | ||||||||
Finished goods | $ | 54,183 | $ | 45,394 | ||||
Raw Materials | 25,082 | 22,682 | ||||||
Packaging materials | 10,744 | 8,833 | ||||||
Equipment parts & other | 26,185 | 26,359 | ||||||
Total Inventories | $ | 116,194 | $ | 103,268 |
| 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.
Food Service
The primary products sold by the food service group are soft pretzels, frozen juice treats and desserts, churros, dough enrobed handheld products and baked goods. Our customers in the food service industry include snack bars and food stands in chain, department and discount stores; malls and shopping centers; fast food outlets; stadiums and sports arenas; leisure and theme parks; convenience stores; movie theatres; warehouse club stores; schools, colleges and other institutions. Within the food service industry, our products are purchased by the consumer primarily for consumption at the point-of-sale.
Retail Supermarkets
The primary products sold to the retail supermarket channel are soft pretzel products – including SUPERPRETZEL, frozen juice treats and desserts including LUIGI’S Real Italian Ice, MINUTE MAID Juice Bars and Soft Frozen Lemonade, WHOLE FRUIT frozen fruit bars and sorbet, PHILLY SWIRL cups and sticks, ICEE Squeeze-Up Tubes and dough enrobed handheld products including PATIO burritos. Within the retail supermarket channel, our frozen and prepackaged products are purchased by the consumer for consumption at home.
Frozen Beverages
We sell frozen beverages and related products to the food service industry primarily under the names ICEE, SLUSH PUPPIE and PARROT ICE in the United States, Mexico and Canada. We also provide repair and maintenance service to customers for customers’ owned equipment.
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’sCompany’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:
Three months ended | Nine months ended | |||||||||||||||||||||||||||||||
June 29, | June 30, | June 29, | June 30, | |||||||||||||||||||||||||||||
Three months ended | Nine months ended | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||||||
June 30, | June 24, | June 30, | June 24, | (unaudited) | ||||||||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | (in thousands) | ||||||||||||||||||||||||||||
Sales to External Customers: | ||||||||||||||||||||||||||||||||
Food Service | ||||||||||||||||||||||||||||||||
Soft pretzels | $ | 53,880 | $ | 45,069 | $ | 151,649 | $ | 129,556 | $ | 55,867 | $ | 53,880 | $ | 154,670 | $ | 151,649 | ||||||||||||||||
Frozen juices and ices | 12,825 | 16,281 | 29,448 | 33,453 | 13,862 | 12,825 | 30,336 | 29,448 | ||||||||||||||||||||||||
Churros | 16,739 | 17,536 | 46,603 | 46,693 | 18,888 | 16,739 | 49,793 | 46,603 | ||||||||||||||||||||||||
Handhelds | 9,974 | 8,574 | 30,667 | 24,155 | 8,550 | 9,974 | 25,339 | 30,667 | ||||||||||||||||||||||||
Bakery | 93,082 | 89,712 | 278,828 | 248,795 | 95,299 | 93,082 | 288,172 | 278,828 | ||||||||||||||||||||||||
Other | 5,201 | 5,938 | 16,235 | 14,833 | 6,105 | 5,201 | 19,576 | 16,235 | ||||||||||||||||||||||||
Total Food Service | $ | 191,701 | $ | 183,110 | $ | 553,430 | $ | 497,485 | $ | 198,571 | $ | 191,701 | $ | 567,886 | $ | 553,430 | ||||||||||||||||
Retail Supermarket | ||||||||||||||||||||||||||||||||
Soft pretzels | $ | 7,332 | $ | 7,496 | $ | 27,925 | $ | 25,626 | $ | 7,294 | $ | 7,332 | $ | 28,309 | $ | 27,925 | ||||||||||||||||
Frozen juices and ices | 28,785 | 27,317 | 53,950 | 50,359 | 26,515 | 28,785 | 52,179 | 53,950 | ||||||||||||||||||||||||
Handhelds | 2,960 | 3,548 | 8,749 | 10,374 | 3,063 | 2,960 | 8,110 | 8,749 | ||||||||||||||||||||||||
Coupon redemption | (1,278 | ) | (1,092 | ) | (2,647 | ) | (3,246 | ) | (962 | ) | (1,278 | ) | (2,163 | ) | (2,647 | ) | ||||||||||||||||
Other | 733 | 873 | 1,715 | 2,260 | 642 | 733 | 1,341 | 1,715 | ||||||||||||||||||||||||
Total Retail Supermarket | $ | 38,532 | $ | 38,142 | $ | 89,692 | $ | 85,373 | $ | 36,552 | $ | 38,532 | $ | 87,776 | $ | 89,692 | ||||||||||||||||
Frozen Beverages | ||||||||||||||||||||||||||||||||
Beverages | $ | 50,343 | $ | 48,714 | $ | 118,932 | $ | 108,812 | $ | 56,937 | $ | 49,131 | $ | 121,976 | $ | 115,401 | ||||||||||||||||
Repair and maintenance service | 19,693 | 18,549 | 58,005 | 54,327 | 22,514 | 19,693 | 62,291 | 58,005 | ||||||||||||||||||||||||
Machines sales | 5,644 | 6,496 | 16,652 | 20,547 | ||||||||||||||||||||||||||||
Machines revenue | 11,810 | 6,856 | 33,875 | 20,183 | ||||||||||||||||||||||||||||
Other | 326 | 404 | 839 | 954 | 317 | 326 | 811 | 839 | ||||||||||||||||||||||||
Total Frozen Beverages | $ | 76,006 | $ | 74,163 | $ | 194,428 | $ | 184,640 | $ | 91,578 | $ | 76,006 | $ | 218,953 | $ | 194,428 | ||||||||||||||||
Consolidated Sales | $ | 306,239 | $ | 295,415 | $ | 837,550 | $ | 767,498 | $ | 326,701 | $ | 306,239 | $ | 874,615 | $ | 837,550 | ||||||||||||||||
Depreciation and Amortization: | ||||||||||||||||||||||||||||||||
Food Service | $ | 6,237 | $ | 6,028 | $ | 19,376 | $ | 18,155 | $ | 6,973 | $ | 6,237 | $ | 19,911 | $ | 19,376 | ||||||||||||||||
Retail Supermarket | 332 | 221 | 980 | 859 | 335 | 332 | 990 | 980 | ||||||||||||||||||||||||
Frozen Beverages | 4,860 | 4,437 | 14,212 | 12,382 | 5,015 | 4,860 | 15,059 | 14,212 | ||||||||||||||||||||||||
Total Depreciation and Amortization | $ | 11,429 | $ | 10,686 | $ | 34,568 | $ | 31,396 | $ | 12,323 | $ | 11,429 | $ | 35,960 | $ | 34,568 | ||||||||||||||||
Operating Income: | ||||||||||||||||||||||||||||||||
Food Service | $ | 19,663 | $ | 22,005 | $ | 54,098 | $ | 58,695 | $ | 21,154 | $ | 19,663 | $ | 59,195 | $ | 54,098 | ||||||||||||||||
Retail Supermarket | 3,203 | 4,890 | 8,295 | 8,390 | 3,651 | 3,203 | 7,739 | 8,295 | ||||||||||||||||||||||||
Frozen Beverages | 12,003 | 10,905 | 17,245 | 14,153 | 14,237 | 12,003 | 18,961 | 17,245 | ||||||||||||||||||||||||
Total Operating Income | $ | 34,869 | $ | 37,800 | $ | 79,638 | $ | 81,238 | $ | 39,042 | $ | 34,869 | $ | 85,895 | $ | 79,638 | ||||||||||||||||
Capital Expenditures: | ||||||||||||||||||||||||||||||||
Food Service | $ | 10,172 | $ | 16,923 | $ | 25,872 | $ | 35,536 | $ | 8,665 | $ | 10,172 | $ | 23,346 | $ | 25,872 | ||||||||||||||||
Retail Supermarket | 273 | 15 | 376 | 228 | 597 | 273 | 1,730 | 376 | ||||||||||||||||||||||||
Frozen Beverages | 6,618 | 7,230 | 17,096 | 21,387 | 6,523 | 6,618 | 17,060 | 17,096 | ||||||||||||||||||||||||
Total Capital Expenditures | $ | 17,063 | $ | 24,168 | $ | 43,344 | $ | 57,151 | $ | 15,785 | $ | 17,063 | $ | 42,136 | $ | 43,344 | ||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||
Food Service | $ | 672,861 | $ | 631,131 | $ | 672,861 | $ | 631,131 | $ | 752,117 | $ | 672,861 | $ | 752,117 | $ | 672,861 | ||||||||||||||||
Retail Supermarket | 24,215 | 25,212 | 24,215 | 25,212 | 24,349 | 24,215 | 24,349 | 24,215 | ||||||||||||||||||||||||
Frozen Beverages | 217,156 | 209,441 | 217,156 | 209,441 | 219,224 | 217,156 | 219,224 | 217,156 | ||||||||||||||||||||||||
Total Assets | $ | 914,232 | $ | 865,784 | $ | 914,232 | $ | 865,784 | $ | 995,690 | $ | 914,232 | $ | 995,690 | $ | 914,232 |
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 30,29, 2019 and September 29, 2018 and September 30, 2017 are as follows:
June 30, 2018 | September 30, 2017 | |||||||||||||||||||||||||||||||
Gross | Gross | June 29, 2019 | September 29, 2018 | |||||||||||||||||||||||||||||
Carrying | Accumulated | Carrying | Accumulated | Gross | Gross | |||||||||||||||||||||||||||
Amount | Amortization | Amount | Amortization | Carrying | Accumulated | Carrying | Accumulated | |||||||||||||||||||||||||
(in thousands) | Amount | Amortization | Amount | Amortization | ||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||
FOOD SERVICE | ||||||||||||||||||||||||||||||||
Indefinite lived intangible assets | ||||||||||||||||||||||||||||||||
Trade Names | $ | 16,628 | $ | - | $ | 16,628 | $ | - | ||||||||||||||||||||||||
Trade names | $ | 16,628 | $ | - | $ | 16,628 | $ | - | ||||||||||||||||||||||||
Amortized intangible assets | ||||||||||||||||||||||||||||||||
Non compete agreements | 980 | 462 | 980 | 263 | ||||||||||||||||||||||||||||
Non-compete agreements | 858 | 622 | 980 | 538 | ||||||||||||||||||||||||||||
Customer relationships | 20,510 | 8,070 | 20,510 | 6,476 | 19,900 | 9,473 | 20,510 | 8,600 | ||||||||||||||||||||||||
License and rights | 1,690 | 1,122 | 1,690 | 1,058 | ||||||||||||||||||||||||||||
Licenses and rights | 1,690 | 1,206 | 1,690 | 1,143 | ||||||||||||||||||||||||||||
TOTAL FOOD SERVICE | $ | 39,808 | $ | 9,654 | $ | 39,808 | $ | 7,797 | $ | 39,076 | $ | 11,301 | $ | 39,808 | $ | 10,281 | ||||||||||||||||
RETAIL SUPERMARKETS | ||||||||||||||||||||||||||||||||
Indefinite lived intangible assets | ||||||||||||||||||||||||||||||||
Trade Names | $ | 6,557 | $ | - | $ | 6,557 | $ | - | ||||||||||||||||||||||||
Trade names | $ | 6,557 | $ | - | $ | 6,557 | $ | - | ||||||||||||||||||||||||
Amortized Intangible Assets | ||||||||||||||||||||||||||||||||
Trade Names | 649 | 227 | 649 | 130 | ||||||||||||||||||||||||||||
Trade names | 649 | 357 | 649 | 260 | ||||||||||||||||||||||||||||
Customer relationships | 7,979 | 3,423 | 7,979 | 2,822 | 7,979 | 4,223 | 7,979 | 3,623 | ||||||||||||||||||||||||
TOTAL RETAIL SUPERMARKETS | $ | 15,185 | $ | 3,650 | $ | 15,185 | $ | 2,952 | $ | 15,185 | $ | 4,580 | $ | 15,185 | $ | 3,883 | ||||||||||||||||
FROZEN BEVERAGES | ||||||||||||||||||||||||||||||||
Indefinite lived intangible assets | ||||||||||||||||||||||||||||||||
Trade Names | $ | 9,315 | $ | - | $ | 9,315 | $ | - | ||||||||||||||||||||||||
Trade names | $ | 9,315 | $ | - | $ | 9,315 | $ | - | ||||||||||||||||||||||||
Distribution rights | 6,900 | - | 6,900 | - | 6,900 | 6,900 | - | |||||||||||||||||||||||||
Amortized intangible assets | ||||||||||||||||||||||||||||||||
Customer relationships | 257 | 69 | 257 | 50 | 737 | 95 | 257 | 76 | ||||||||||||||||||||||||
Licenses and rights | 1,400 | 846 | 1,400 | 794 | 1,400 | 916 | 1,400 | 863 | ||||||||||||||||||||||||
TOTAL FROZEN BEVERAGES | $ | 17,872 | $ | 915 | $ | 17,872 | $ | 844 | $ | 18,352 | $ | 1,011 | $ | 17,872 | $ | 939 | ||||||||||||||||
CONSOLIDATED | $ | 72,865 | $ | 14,219 | $ | 72,865 | $ | 11,593 | $ | 72,613 | $ | 16,892 | $ | 72,865 | $ | 15,103 |
AmortizedFully amortized intangible assets have been removed from the June 29, 2019 amounts. Intangible assets of $480,000 were acquired in the Frozen Beverages segment in the third quarter.
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. In last year’s fiscal year, intangible assets of $6,957,000 were acquired in an ICEE distributor acquisition in our frozen beverage segment, intangible assets of $15,760,000 were acquired in the Hill & Valley acquisition in our food service segment and intangible assets of $576,000 were acquired in the Labriola Baking acquisition, also in our food service segment.
Aggregate amortization expense of intangible assets for the three months ended June 29, 2019 and June 30, 2018 was $836,000 and June 24, 2017 was $876,000, and $828,000, respectively andrespectively. Aggregate amortization expense of intangible assets for the nine months ended June 29, 2019 and June 30, 2018 was $2,521,000 and June 24, 2017 was $2,626,000, and $2,957,000, respectively.
Estimated amortization expense for the next five fiscal years is approximately $3,500,000 in 2018, $3,300,000 in 2019, $3,000,000 in 2020, $2,400,000 in 2021, and $2,300,000 in 2022.2022 and in 2023. The weighted amortization period of the intangible assets is 10.810.7 years.
Goodwill
The carrying amounts of goodwill for the Food Service, Retail Supermarket and Frozen Beverage segments are as follows:
Food Service | Retail Supermarket | Frozen Beverages | Total | |||||||||||||
(in thousands) | ||||||||||||||||
Balance at June 30, 2018 | $ | 61,665 | $ | 3,670 | $ | 37,176 | $ | 102,511 | ||||||||
Balance at September 30, 2017 | $ | 61,665 | $ | 3,670 | $ | 37,176 | $ | 102,511 |
Food | Retail | Frozen | ||||||||||||||
Service | Supermarket | Beverages | Total | |||||||||||||
(in thousands) | ||||||||||||||||
Balance at June 29, 2019 | $ | 61,665 | $ | 3,670 | $ | 37,176 | $ | 102,511 | ||||||||
Balance at September 29, 2018 | $ | 61,665 | $ | 3,670 | $ | 37,176 | $ | 102,511 |
In last year’s fiscal year, goodwill of $1,236,000 was acquired in an ICEE distributor acquisition in our frozen beverage segment, goodwill of $14,175,000 was acquired in the Hill & Valley acquisition in our food service segment and goodwill of $658,000 was acquired in our Labriola Baking acquisition, also in our food service segment.
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 |
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, corporate bonds and certificates of deposit are based on quoted prices for identical or similar instruments in markets that are not active. As a result, preferred stock, corporate bonds and certificates of deposit 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 June 30, 2018 29, 2019 are summarized as follows:
Gross | Gross | Fair | Gross | Gross | Fair | |||||||||||||||||||||||||||
Amortized | Unrealized | Unrealized | Market | Amortized | Unrealized | Unrealized | Market | |||||||||||||||||||||||||
Cost | Gains | Losses | Value | Cost | Gains | Losses | Value | |||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||
Corporate Bonds | $ | 126,939 | $ | 8 | $ | 1,600 | $ | 125,347 | $ | 133,993 | $ | 1,011 | $ | 125 | $ | 134,879 | ||||||||||||||||
Certificates of Deposit | 6,880 | - | 8 | 6,872 | 2,880 | 5 | - | 2,885 | ||||||||||||||||||||||||
Total marketable securities held to maturity | $ | 133,819 | $ | 8 | $ | 1,608 | $ | 132,219 | $ | 136,873 | $ | 1,016 | $ | 125 | $ | 137,764 |
The amortized cost, unrealized gains and losses, and fair market values of our investment securities available for sale at June 30, 2018 29, 2019 are summarized as follows:
Gross | Gross | Fair | Gross | Gross | Fair | |||||||||||||||||||||||||||
Amortized | Unrealized | Unrealized | Market | Amortized | Unrealized | Unrealized | Market | |||||||||||||||||||||||||
Cost | Gains | Losses | Value | Cost | Gains | Losses | Value | |||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||
Mutual Funds | $ | 12,954 | $ | - | $ | 385 | $ | 12,569 | $ | 5,549 | $ | - | $ | 394 | $ | 5,155 | ||||||||||||||||
Preferred Stock | 16,035 | 344 | 40 | 16,339 | 15,681 | 254 | 58 | 15,877 | ||||||||||||||||||||||||
Total marketable securities available for sale | $ | 28,989 | $ | 344 | $ | 425 | $ | 28,908 | $ | 21,230 | $ | 254 | $ | 452 | $ | 21,032 |
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 2018, 2019,2020 and 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 20182019 through 2021,2022, with $124$112 million maturing within 32 years. Our expectation is that we will hold the corporate bonds to their maturity dates and redeem them at our amortized cost.
The amortized cost, unrealized gains and losses, and fair market values of our investment securities held to maturity at September 30, 2017 29, 2018 are summarized as follows:
Gross | Gross | Fair | ||||||||||||||||||||||||||||||
Gross | Gross | Fair | Amortized | Unrealized | Unrealized | Market | ||||||||||||||||||||||||||
Amortized | Unrealized | Unrealized | Market | Cost | Gains | Losses | Value | |||||||||||||||||||||||||
Cost | Gains | Losses | Value | (in thousands) | ||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||
Corporate Bonds | $ | 114,101 | $ | 424 | $ | 155 | $ | 114,370 | $ | 136,933 | $ | 28 | $ | 1,520 | $ | 135,441 | ||||||||||||||||
Certificates of Deposit | 5,920 | 18 | 1 | 5,937 | 2,880 | - | 7 | 2,873 | ||||||||||||||||||||||||
Total marketable securities held to maturity | $ | 120,021 | $ | 442 | $ | 156 | $ | 120,307 | $ | 139,813 | $ | 28 | $ | 1,527 | $ | 138,314 |
The amortized cost, unrealized gains and losses, and fair market values of our investment securities available for sale at September 30, 2017 29, 2018 are summarized as follows:
Gross | Gross | Fair | Gross | Gross | Fair | |||||||||||||||||||||||||||
Amortized | Unrealized | Unrealized | Market | Amortized | Unrealized | Unrealized | Market | |||||||||||||||||||||||||
Cost | Gains | Losses | Value | Cost | Gains | Losses | Value | |||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||
Mutual Funds | $ | 13,003 | $ | 77 | $ | 240 | $ | 12,840 | $ | 8,978 | $ | - | $ | 295 | $ | 8,683 | ||||||||||||||||
Preferred Stock | 16,791 | 711 | 82 | 17,420 | 15,680 | 380 | - | 16,060 | ||||||||||||||||||||||||
Total marketable securities available for sale | $ | 29,794 | $ | 788 | $ | 322 | $ | 30,260 | $ | 24,658 | $ | 380 | $ | 295 | �� | $ | 24,743 |
The amortized cost and fair value of the Company’s held to maturity securities by contractual maturity at June 30,29, 2019 and September 29, 2018 and September 30, 2017 are summarized as follows:
June 30, 2018 | September 30, 2017 | June 29, 2019 | September 29, 2018 | |||||||||||||||||||||||||||||
Fair | Fair | Fair | Fair | |||||||||||||||||||||||||||||
Amortized | Market | Amortized | Market | Amortized | Market | Amortized | Market | |||||||||||||||||||||||||
Cost | Value | Cost | Value | Cost | Value | Cost | Value | |||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||
Due in one year or less | $ | 30,271 | $ | 30,200 | $ | 59,113 | $ | 59,194 | $ | 40,809 | $ | 40,895 | $ | 21,048 | $ | 21,001 | ||||||||||||||||
Due after one year through five years | 103,548 | 102,019 | 60,908 | 61,113 | 96,064 | 96,869 | 118,765 | 117,313 | ||||||||||||||||||||||||
Due after five years through ten years | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Total held to maturity securities | $ | 133,819 | $ | 132,219 | $ | 120,021 | $ | 120,307 | $ | 136,873 | $ | 137,764 | $ | 139,813 | $ | 138,314 | ||||||||||||||||
Less current portion | 30,271 | 30,200 | 59,113 | 59,194 | 40,809 | 40,895 | 21,048 | 21,001 | ||||||||||||||||||||||||
Long term held to maturity securities | $ | 103,548 | $ | 102,019 | $ | 60,908 | $ | 61,113 | $ | 96,064 | $ | 96,869 | $ | 118,765 | $ | 117,313 |
Proceeds from the redemption and sale of marketable securities were $6,584,800 and $29,721,000 in the three and nine months ended June 29, 2019 and were $21,964,000 and $51,417,000 in the three and nine months ended June 30, 2018, respectively. Realized losses of $8,000 and $9,577,000 and $14,681,000$25,000 were recorded in the three and nine months ended June 24, 2017, respectively. Losses29, 2019 and realized losses of $35,000 and $32,000 were recorded in the three and nine months ended June 30, 2018, respectively and gains of $13,000 were recorded in the three and nine months ended June 24, 2017.respectively. We use the specific identification method to determine the cost of securities sold. Under new accounting guidance adopted on the first day of this fiscal year, recognized unrealized losses on marketable securities of $118,000 and $385,000 were recorded in the three months and nine months ended June 29, 2019, respectively.
| Note 12Changes to the components of accumulated other comprehensive loss are as follows: |
Three Months Ended June 29, 2019 | Nine Months Ended June 29, 2019 | |||||||||||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||
Unrealized | Unrealized | |||||||||||||||||||||||
Foreign Currency | Holding Gain | Foreign Currency | Holding Gain | |||||||||||||||||||||
Translation | on Marketable | Translation | on Marketable | |||||||||||||||||||||
Adjustments | Securities | Total | Adjustments | Securities | Total | |||||||||||||||||||
Beginning Balance | $ | (13,044 | ) | $ | - | $ | (13,044 | ) | $ | (12,079 | ) | $ | 85 | $ | (11,994 | ) | ||||||||
Other comprehensive income (loss) before reclassifications | 496 | - | 496 | (469 | ) | - | (469 | ) | ||||||||||||||||
Amounts reclassified from accumulated other comprehensive income | - | - | - | - | (85 | ) | (85 | ) | ||||||||||||||||
Ending Balance | $ | (12,548 | ) | $ | - | $ | (12,548 | ) | $ | (12,548 | ) | $ | - | $ | (12,548 | ) |
Three Months Ended June 30, 2018 | Nine Months Ended June 30, 2018 | |||||||||||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||
Unrealized | Unrealized | |||||||||||||||||||||||
Foreign Currency | Holding Gain (Loss) | Foreign Currency | Holding Gain (Loss) | |||||||||||||||||||||
Translation | on Marketable | Translation | on Marketable | |||||||||||||||||||||
Adjustments | Securities | Total | Adjustments | Securities | Total | |||||||||||||||||||
Beginning Balance | $ | (11,330 | ) | $ | 172 | $ | (11,158 | ) | $ | (9,341 | ) | $ | 466 | $ | (8,875 | ) | ||||||||
Other comprehensive loss before reclassifications | (2,359 | ) | (328 | ) | (2,687 | ) | (4,348 | ) | (622 | ) | (4,970 | ) | ||||||||||||
Amounts reclassified from accumulated other comprehensive income | - | 75 | 75 | - | 75 | 75 | ||||||||||||||||||
Ending Balance | $ | (13,689 | ) | $ | (81 | ) | $ | (13,770 | ) | $ | (13,689 | ) | $ | (81 | ) | $ | (13,770 | ) |
Three Months Ended June 24, 2017 | Nine Months Ended June 24, 2017 | |||||||||||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||
Unrealized | ||||||||||||||||||||||||
Unrealized | Holding | |||||||||||||||||||||||
Foreign Currency | Holding Gain on | Foreign Currency | Loss (Gain) on | |||||||||||||||||||||
Translation | Marketable | Translation | Marketable | |||||||||||||||||||||
Adjustments | Securities | Total | Adjustments | Securities | Total | |||||||||||||||||||
Beginning Balance | $ | (12,296 | ) | $ | 166 | $ | (12,130 | ) | $ | (13,086 | ) | $ | (329 | ) | $ | (13,415 | ) | |||||||
Other comprehensive income before reclassifications | 1,095 | 204 | 1,299 | 1,885 | 699 | 2,584 | ||||||||||||||||||
Amounts reclassified from accumulated other comprehensive income | - | - | - | - | - | |||||||||||||||||||
Ending Balance | $ | (11,201 | ) | $ | 370 | $ | (10,831 | ) | $ | (11,201 | ) | $ | 370 | $ | (10,831 | ) |
|
|
On May 22, 2017, we acquired an ICEE distributor doing business in Georgia and Tennessee for approximately $11 million.
On August 16, 2017, we acquired Labriola Baking Company, a bakery of breads and artisan soft pretzels located in Alsip, IL for approximately $6 million. Labriola Bakery, with sales of approximately $17 million annually, is a manufacturer of pre-baked breads, rolls and soft pretzels for retail in-store bakery and foodservice outlets nationwide.
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Liquidity and Capital Resources
Our current cash and cash equivalents balances, investments and cash expected to be provided by future operations are our primary sources of liquidity. We believe that these sources, along with our borrowing capacity, are sufficient to fund future growth and expansion. See Note 11 to these financial statements for a discussion of our investment securities.
The Company’s Board of Directors declared a regular quarterly cash dividend of $.45$.50 per share of its common stock payable on July 5, 2018,3, 2019, to shareholders of record as of the close of business on June 14, 2018.12, 2019.
In our fiscal year ended September 30, 2017, we purchased and retired 142,665 shares of our common stock at a cost of $18,228,763. In the three and nine months ended June 30,29, 2018, we purchased and retired 20,604 shares of our common stock at a cost of $2,794,027. In the three months and nine months ended June 29, 2019 we did not purchase and retire any shares. On August 4, 2017 the Company’s Board of Directors authorized the purchase and retirement of 500,000 shares of the Company’s common stock; 384,446384,506 shares remain to be purchased under this authorization.
In the three months ended June 30, 2018 and June 24, 2017 fluctuationsFluctuations in the valuation of the Mexican and Canadian currencies and the resulting translation of the net assets of our Mexican and Canadian subsidiaries caused a decrease of $496,000 in accumulated other comprehensive loss in the 2019 third quarter and an increase of $2,359,000 in accumulated other comprehensive loss in the 2018 third quarter and a decrease of $1,095,000 in accumulated other comprehensive loss in the 2017 third quarter. In the nine-month period, fluctuations in the valuation of the Mexican and Canadian currencies and the resulting translation of the net assets of our Mexican and Canadian subsidiaries caused an increase of $469,000 in accumulated other comprehensive loss in the 2019 nine-month period and an increase of $4,348,000 in accumulated other comprehensive loss in the 2018 nine-month period and decrease of $1,885,000 in accumulated other comprehensive loss in the 2017 nine-month period.
Our general-purpose bank credit line which expires in November 2021 provides for up to a $50,000,000 revolving credit facility. The agreement contains restrictive covenants and requires commitment fees in accordance with standard banking practice. There were no outstanding balances under this facility at June 30, 2018.29, 2019.
Results of OperationsRESULTS OF OPERATIONS
Net sales increased $10,824,000$20,462,000 or 4%7% to $306,239,000$326,701,000 for the three months and $70,052,000$37,065,000 or 9%4% to $837,550,000$874,615,000 for the nine months ended June 30, 201829, 2019 compared to the three and nine months ended June 24, 2017. Excluding first twelve months’ sales from Hill & Valley, Inc., acquired in January 2017, an ICEE distributor located in the Southeast acquired in June 2017 and Labriola Bakery which was acquired in August 2017, sales for the three months increased $6,329,000 or 2% from last year and sales for the nine months increased $38,365,000, or 5% from last year.30, 2018, respectively.
FOOD SERVICE
Sales to food service customers increased $8,591,000$6,870,000 or 5%4% in the third quarter to $191,701,000$198,571,000 and increased $55,945,000 or 11% for the nine months. Excluding first twelve months’ sales of Hill & Valley and Labriola, sales increased $4,596,000$14,456,000 or 3% for the third quarter and $26,161,000 or 5%to $567,886,000 for the nine months. Soft pretzel sales to the food service market increased 20%4% to $53,880,000$55,867,000 in the three months and 17%2% to $151,649,000$154,670,000 in the nine months due primarily to higher sales to convenience store chains. Two chains accounted for about 3/4 of the sales increase in the third quarter and about 11% and 10%1/2 of the increase in the three and nine months without Labriola sales. In addition to Labriola sales, soft pretzel sales increased significantly due to increased distribution to restaurant chains and movie theatres and we had strong sales of our recently introduced BRAUHAUS pretzels.months.
Frozen juices and ices sales decreased 21%increased 8% to $12,825,000$13,862,000 in the three months and decreased 12%3% to $29,448,000$30,336,000 in the nine months due entirely to loweras sales to warehouse club stores becauseaccounted for over 60% of a lossthe increase in the third quarter and all of a promotion and because of reduced distribution.the increase in the nine months.
Churro sales to food service customers were down 5%up 13% in the third quarter to $16,739,000$18,888,000 and were essentially unchanged at $46,603,000up 7% to $49,793,000 in the nine months with strong sales to warehouse club stores and general increases and decreases across our customer base but with particularly lower sales to one warehouse club store in the third quarter which last year had sales of a new product since discontinued. base.
Sales of bakery products increased $3,370,000$2,217,000 or 4%2% to $95,299,000 in the third quarter to $93,082,000 and increased $30,033,000$9,344,000 or 12%3% to $288,172,000 for the nine months. Excluding sales of Hill & Valley and Labriola, bakerymonths as sales were higher to school foodservice and were up 3% for the quarter and 4% for the year primarily due to increased sales to several customers.down across our customer base.
Sales of handhelds increased $1,400,000decreased $1,424,000 or 16%14% in the third quarter and $6,512,000$5,328,000 or 27% for17% in the nine months with the increase in both periodsdecrease primarily coming primarily from lower sales to two customers.co-pack customers because of unsuccessful product launches. Sales of funnel cake decreased $535,000increased $522,000 or, 10%, to $5,616,000 in the quarter and $2,873,000, or 19%, to $5,094,000 and increased $1,512,000 or 11% for$18,308,000 in the nine months. The nine months to $15,435,000 as we continue tosales increase was primarily sales to school food service. Sales ofa quick service restaurant under a limited time only funnel cake sold for distribution into independent fast food restaurant chains were down approximately $350,000offer program which ended in both periods compared to a year ago and lower sales to one fast food restaurant chain accounted for the balance of the decrease in this year’s quarter’s sales. second quarter.
Sales of new products in the first twelve months since their introduction were approximately $4 million in this quarter and $17$11 million in the nine months. Price increases accountedwere approximately $4 million for the quarter and $11 million for the nine months and net volume increases were approximately $2.4$3 million of sales in the quarter and $6.0 million of sales in the nine months and net volume increases, including new product sales as defined above and Hill & Valley and Labriola sales, accounted for approximately $6 million of sales in the quarter and $50 million of sales in the nine months.
Operating income in our Food Service segment decreasedincreased from $22,005,000$19,663,000 to $19,663,000$21,154,000 in the third quarter and decreasedincreased from $58,695,000$54,098,000 to $54,098,000$59,195,000 in the nine months. Last year’sFor the quarter, operating income in the third quarterincreased primarily because of increased volume, lower distribution expenses and nine months benefited from a $1.8 million gain on an insurance recovery related to product quality issues in our 2016 fiscal year which was recorded as a reduction of cost of goods sold. This year’s quarter and nine monthsincreased pricing but was impacted by approximately $1.3 million$600,000 of costs related to prior years’ product recalls. For the nine months, operating income improved primarily because of increased volume, price increases, lower marketing expenses and $3.3 million, respectively,improved operations at several of our manufacturing facilities. Additionally, last year’s first quarter included shutdown costs of our Chambersburg, PA production facility. However, this year’s nine months, all in the first quarter, was impacted by approximately $900,000 of higher distribution expenses primarily due to higher fuel costs andfreight rates which increased with the recent implementation of the electronic logging device mandate.mandate in January 2018. Additionally, lower sales of our MARY B’s biscuits and related costs due to our recall in early January 2018 impacted our operating income by approximately $500,000 in the third quarter and $1.0 million in the nine months. Hill & Valley contributed improved operating income of $364,000 in the third quarter and $2.1 million in the nine months. For the third quarter and nine months, operating income in the balance of our food service business was impacted by generally higher costs for payroll and insurance, added personnel in the selling function, product mix changes and significantly lower volume concentrated in specific facilities and higher ingredients costs. Operating income in the first quarter was impacted by inefficiencies at our recently acquired Labriola production facility (compounded by the integration of products previously manufactured at other facilities) and shutdown costs of our Chambersburg facility; both of which had little impact beyond thelast year’s first quarter.
RETAIL SUPERMARKETS
Sales of products to retail supermarkets increased $390,000decreased $1,980,000 or 1%5% to $38,532,000$36,552,000 in the third quarter and increased $4,319,000decreased $1,916,000 or 5% in2% to $87,776,000 for the nine months. Soft pretzel sales for the third quarter were down 2%less than 1% to $7,332,000$7,294,000 and up 9%1% to $27,925,000$28,309,000 for the nine months. The nine month increase was primarily due to sales of AUNTIE ANNE’S* soft pretzels under a license agreement entered into in 2017. Sales of frozen juices and ices increased $1,468,000decreased $2,270,000 or 5%8% to $28,785,000$26,515,000 in the third quarter and were up $3,591,000decreased $1,771,000 or 7% to $53,950,000 for3% in the nine months primarilyas we lost some volume and placements due to sales of SOUR PATCH KIDS** frozen novelties under a new license agreement.price increases. Handheld sales to retail supermarket customers decreased 17%increased 3% to $2,960,000$3,063,000 in the third quarter and decreased 16%were down 7% to $8,749,000 for$8,110,000 in the nine months as the sales of this product line in retail supermarkets continuescontinue their long termlong-term decline.
Sales of new products in the third quarter were approximately $3 million$200,000 and were $7approximately $1 million for the nine months. Price increases had no impact on sales in the quarter and nine months and net volume increases, including new product sales as defined above accounted for $390,000provided about $1.1 million of sales in the quarter and $4.3$2.0 million of sales in the nine months and net volume decreased by about $3.1 million for the quarter and $4.0 million for the nine months.
Operating income in our Retail Supermarkets segment was $3,203,000increased to $3,651,000 in this year’s third quarter compared to $4,890,000from $3,203,000 in last year’s quarter, a 14% increase and was $8,295,000decreased to $7,739,000 in this year’s nine months compared to $8,390,000$8,295,000 in last year’s nine months. Contributions toFor the lowerquarter, operating income in this year’s quarter werebenefited from lower sales of soft pretzels and LUIGI’S Real Italian Ice and increases in trade spending, coupon redemptionsmarketing and distribution costs.
* AUNTIE ANNE’S is a registered trademarkcosts and increased pricing. For the nine months, increased product costs combined with lower volume were the primary drivers of Auntie Anne’s LLC.the decrease in operating income.
**SOUR PATCH KIDS is a registered trademark of Mondelez International Group
FROZEN BEVERAGES
Frozen beverage and related product sales increased 2%20% to $76,006,000$91,578,000 in the third quarter and increased 5%13% to $194,428,000$218,953,000 in the nine month period. Excluding sales of the acquired ICEE distributor, frozen beverages andmonths. Beverage related product sales were up 16% to $56,937,000 in the quarter due in large part to increased sales to one distributor of about $4 million and up 6% to $121,976,000 in the nine months. The increased sales to this one distributor did not benefit operating income. Sales to this distributor may continue to be higher into our fourth quarter. Gallon sales were up 2% for the third quarter and 4% for the nine month period. Beverage sales alone were up 3%three months. Service revenue increased 14% to $50,343,000$22,514,000 in the third quarter and up 9% to $118,932,000 for the nine months. Without the acquired ICEE distributor, beverage sales alone were up about 2% for the quarter and 8% for the nine months. Gallon sales were up 7% for the third quarter and 7% for the nine months with higher sales to movie theatres and across our customer base. Service revenue increased 6% to $19,693,000 in the third quarter and 7% to $58,005,000 for$62,291,000 in the nine months with sales increases concentratedand decreases spread throughout our customer base, but with significant increases in sales to severaltwo customers.
SalesMachines revenue (primarily sales of frozen beverage machines, which tend to fluctuate from year to year while following no specific trend, were $5,644,000, a decreasemachines) was $11,810,000, an increase of 13% for$4,954,000, in the quarter and $16,652,000, a decrease$33,875,000, an increase of 19%$13,692,000, in the nine months. Increases in sales to three customers accounted for the nine month period.
higher revenue in the quarter. Operating income in our Frozen BeverageBeverages segment increased to $12,003,000$14,237,000, or 19%, in this year’s quarter and was up $1,716,000, or 10%, to $17,245,000 for this year’s$18,961,000 in the nine months compared to $10,905,000 and $14,153,000 in last years’ quarter and nine months, respectively,primarily as a result of higher beverage sales and service revenue.the increases in sales.
CONSOLIDATED
Gross profit as a percentage of sales was 30.85%31.02% in the third quarter and 32.08%30.85% last year. Gross profit as a percentage of sales was 29.26%29.44% in the nine month period this year and 30.42%29.26% last year. WithoutGross profit percentage for the gain on insurance recovery of $1.8 million recorded in last year’s third quarter related to certain product quality issues in our 2016 fiscal year, gross profit as a percentage of sales would have been 31.48% in last year’s third quarter and 30.19% in the nine months last year. For the nine months, the decrease was caused by higher costs for payroll and insurance, inefficiencies in our recently acquired Labriola production facility (compounded by the integrationincreased because of products previously manufacturedimproved operations at other facilities), product mix changes, significantly lower volume concentrated in specific facilities, lower salesseveral of our MARY B’S biscuitsmanufacturing facilities, price increases and related costs due to our recall in early January, shutdown costsbecause last year had the burden of shutting down our Chambersburg, PA production facility and higher ingredients costs. Of these, the inefficiencies at Labriola and shutdown costs of our Chambersburg facility had little impact in our third quarter. moving its production to other facilities.
Total operating expenses increased $2,642,000$2,701,000 in the third quarter and as a percentage of sales increaseddecreased to 19.5%19.1% from 19.3%19.5% last year. For the nine months, operating expenses increased $13,156,000,$6,171,000 and as a percentage of sales decreased to 19.6% from 19.8% to 19.7%. last year. Marketing expenses decreased to 8.4%8.1% of sales in this year’s quarter from 8.7%8.4% last year primarily because of lower spending to support warehouse club store salesand were 8.0% in our foodservice business and lower marketing expenses of the acquired Labriola business. Marketing expenses were 8.3% in this year’s nine months compared to 8.8%8.3% of sales in last year’s nine months primarily because of lower mediacontrolled spending inacross all of our retail supermarket business in the first six months of the year, lower spending to support warehouse club store sales in our foodservice business and lower marketing expenses of the acquired Hill & Valley and Labriola businesses.segments. Distribution expenses were 7.9%7.5% of sales in the third quarter and 7.4%7.9% of sales in last year’s quarter and were 8.1% in this year’s nine months compared to 7.6% of sales in lastboth year’s nine months. Distribution expenses as a percentage of sales were lower in the third quarter primarily because freight rates have increased duedropped compared to higher fuel costs and the recent implementation of the electronic logging device mandate. We expect distribution expenses to remain higher for at least the remainder of our 2018 fiscallast year. Administrative expenses were 3.2%3.3% of sales in the third quarter compared to 3.2% of sales last year in the third quarter and were 3.3%3.4% in this year’s nine months compared to 3.4%3.3% of sales in last year’s nine months. Other general operating expense in this year’s quarter includes $621,000 of costs related to prior years’ product recalls.
Operating income decreased $2,931,000increased $4,173,000 or 12% to $39,042,000 in the three months and increased $6,257,000 or 8% to $34,869,000 in$85,895,000 the third quarter and decreased $1,600,000 or 2% to $79,638,000 in thefirst nine months as a result of the aforementioned items.
Investment income increased by $283,000$248,000 and $863,000$1,088,000 in the third quarter and nine months, respectively, resulting from higher amounts invested and higher interest rates. Additionally, the third quarter and nine months were impacted by $118,000 and $385,000 of recognized unrealized losses.
This year’s other income in the third quarter includes a $2.0 million payment received from a customer due to cancellation of production under a co-manufacturing agreement. Our sales of the product line cancelled were $121,000 and $1.2 million in the three and nine months ended June 30, 2018 and we have not had any sales since June 30, 2018. Other income for thislast year’s nine months includes a $520,000 gain on a sale of property; other expense in last year’s quarter and nine months includes $53,000 and $567,000, respectively, of acquisition costs for the Hill & Valley and ICEE distributor purchases.property.
Net earnings increased $825,000,$4,743,000, or 3%18%, in the current three month period to $26,129,000$30,872,000 and were $80,211,000$68,752,000 for the nine month period this year compared to $54,831,000$80,211,000 for the nine month period last year.
Net earnings for thelast year’s nine months ended June 30, 2018 benefited from a $20.9 million gain, or $1.11 per diluted share, gain on the remeasurement of deferred tax liabilities and a $7.4 million, or $0.40 per diluted share, reduction in income taxes related primarily to the lower corporate tax rate enacted under the Tax Cuts and Jobs Act in December 2017. Net earnings for the nine months were impactedwhich was partially offset by a $1.2 million, or $.06 per diluted share, provision for the one time repatriation tax, required underboth of which resulted from the new tax law. For the three months ended June 30, 2018, net earnings benefited by a $3.5 million, or $.18 per diluted share, reductionTax Cuts and Jobs Act enacted in income taxes primarily related to the lower corporate tax rate.December 2017. Excluding the deferred tax gain and the one-timeone time repatriation tax, our effective tax rate decreased to 28.1% from 35.4%was 28.4% in the prior year quarter and to 28.4% from 35.0%last year’s nine months. Net earnings in prior yearthis year’s nine months reflectingbenefitted by a reduction of approximately $900,000 in tax as the provision for the one time repatriation tax was reduced as the amount recorded last year was an estimate. Excluding the reduction in the federal statutory rate to 21% from 35% on January 1, 2018. Last year’s nine months’provision for the one time repatriation tax, our effective tax rate benefited from an unusually high tax benefit on share based compensation of $2,060,000 which compares towas 27.5% in this year’s nine month’s tax benefit of $909,000. We are presently estimating anmonths. Our effective tax rate of 28-29% for the third quarter this year was 28.1% and 28.1% for last year’s third quarter, of our fiscalas this year 2018benefitted from tax credits on returns filed this year and 26-27% for our fiscal year 2019.a lower federal tax rate.
There are many factors which can impact our net earnings from year to year and in the long run, among which are the supply and cost of raw materials and labor, insurance costs, factors impacting sales as noted above, the continuing consolidation of our customers, our ability to manage our manufacturing, marketing and distribution activities, our ability to make and integrate acquisitions and changes in tax laws and interest rates.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
There has been no material change in the Company’s assessment of its sensitivity to market risk since its presentation set forth, in item 7a. “Quantitative and Qualitative Disclosures About Market Risk,” in its 2017 annual report on Form 10-K filed with the SEC.
Item 4. | Controls and Procedures |
The Chief Executive Officer and the Chief Financial Officer of the Company (its principal executive officer and principal financial officer, respectively) have concluded, based on their evaluation as of June 30, 2018,29, 2019, that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
There has been no change in the Company’s internal control over financial reporting during the quarter ended June 30, 2018,29, 2019, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
PART II. OTHER INFORMATION | |
Item 6. | Exhibits |
Exhibit No. |
31.1 | & | Certification Pursuant to Section 302 of | ||
31.2 | the Sarbanes-Oxley Act of 2002 | |||
99.5 | & | Certification Pursuant to the 18 U.S.C. | ||
99.6 | Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||
101.1 | The following financial information from J&J Snack Foods Corp.'s Quarterly Report on Form 10-Q for the quarter ended June | |||
(i) | Consolidated Balance Sheets, | |||
(ii) | Consolidated Statements of Earnings, | |||
(iii) | Consolidated Statements of Comprehensive Income, | |||
(iv) | Consolidated Statements of Cash Flows and | |||
(v) | the Notes to the Consolidated Financial Statements |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
J & J SNACK FOODS CORP. | ||
Dated: August 1, 2019 | /s/ Gerald B. Shreiber | |
Gerald B. Shreiber | ||
Chairman of the Board, | ||
President, Chief Executive | ||
Officer and Director | ||
(Principal Executive Officer) | ||
Dated: August | ||
| ||
| /s/ Dennis G. Moore | |
Dennis G. Moore, Senior Vice | ||
President, Chief Financial | ||
Officer and Director | ||
(Principal Financial Officer) | ||
(Principal Accounting Officer) |
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