UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the period ended March 30, 2024
or
☐
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number: 0-14616
J&J SNACK FOODS CORP.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of
incorporation or organization)
Identification No.)
350 Fellowship Road, Mt. Laurel, New Jersey 08054
(Address of principal executive offices)
Telephone (856) 665-9533
Securities registered pursuant to Section 12(b) of the Exchange Act:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐ Yes ☒ No
At May 3, 2024 there were 19,386,215 shares of the Registrant’s Common Stock outstanding.
INDEX
Page
Number
Part I.
Item l.
Consolidated Statements of Comprehensive Income (unaudited) – Three and Six Months Ended March 30, 2024 and March 25, 2023
Part II.
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
March 30,
2024
September 30,
(unaudited)
2023
Assets
Current assets
Cash and cash equivalents
Accounts receivable, net
Inventories
Prepaid expenses and other
Total current assets
Property, plant and equipment, at cost
Land
Buildings
Plant machinery and equipment
Marketing equipment
Transportation equipment
Office equipment
Improvements
Construction in progress
Total Property, plant and equipment, at cost
Less accumulated depreciation and amortization
Property, plant and equipment, net
Other assets
Goodwill
Other intangible assets, net
Operating lease right-of-use assets
Other
Total other assets
Total Assets
Liabilities and Stockholders' Equity
Current liabilities
Current finance lease liabilities
Accounts payable
Accrued insurance liability
Accrued liabilities
Current operating lease liabilities
Accrued compensation expense
Dividends payable
Total current liabilities
Long-term debt
Noncurrent finance lease liabilities
Noncurrent operating lease liabilities
Deferred income taxes
Other long-term liabilities
Stockholders' Equity
Preferred stock, $1 par value; authorized 10,000,000 shares; none issued
Common stock, no par value; authorized, 50,000,000 shares; issued and outstanding 19,386,000 and 19,332,000 respectively
Accumulated other comprehensive loss
Retained Earnings
Total stockholders' equity
Total Liabilities and Stockholders' Equity
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except per share amounts)
Three months ended
Six months ended
March 25,
Net sales
Cost of goods sold
Gross profit
Operating expenses
Marketing
Distribution
Administrative
Other general expense
Total operating expenses
Operating income
Other income (expense)
Investment income
Interest expense
Earnings before income taxes
Income tax expense
NET EARNINGS
Earnings per diluted share
Weighted average number of diluted shares
Earnings per basic share
Weighted average number of basic shares
J&J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Net earnings
Foreign currency translation adjustments
Comprehensive income
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited) (in thousands)
Accumulated
Common Stock
Comprehensive
Retained
Shares
Amount
Loss
Earnings
Total
Balance at September 30, 2023
Foreign currency translation adjustment
Dividends declared
Share-based compensation
Balance at December 30, 2023
Issuance of common stock upon exercise of stock options
Issuance of common stock for employee stock purchase plan
Balance at March 30, 2024
Balance at September 24, 2022
Balance at December 24, 2022
Balance at March 25, 2023
CONSOLIDATED STATEMENTS OF CASH FLOWS
Operating activities:
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation of fixed assets
Amortization of intangibles and deferred costs
(Gain) loss from disposals of property & equipment
(Gain) loss on marketable securities
Changes in assets and liabilities, net of effects from purchase of companies
Decrease in accounts receivable
(Increase) Decrease in inventories
Decrease in prepaid expenses
(Decrease) in accounts payable and accrued liabilities
Net cash provided by operating activities
Investing activities:
Purchases of property, plant and equipment
Proceeds from redemption and sales of marketable securities
Proceeds from disposal of property and equipment
Net cash used in investing activities
Financing activities:
Proceeds from issuance of stock
Borrowings under credit facility
Repayment of borrowings under credit facility
Payments on finance lease obligations
Payment of cash dividend
Net cash provided by (used in) financing activities
Effect of exchange rates on cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1
Basis of Presentation
The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all information and notes required by generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2023.
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the Company’s financial position and the results of operations and cash flows.
The results of operations for the three and six months ended March 30, 2024 and March 25, 2023 are not necessarily indicative of results for the full year. Sales of our frozen beverages and frozen novelties are generally higher in the fiscal third and fourth quarters due to warmer weather.
While we believe that the disclosures presented are adequate to make the information not misleading, it is suggested that these consolidated financial statements be read in conjunction with the audited consolidated financial statements and the notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2023.
Note 2
Revenue Recognition
We recognize revenue in accordance with ASC 606, “Revenue from Contracts with Customers.”
When Performance Obligations Are Satisfied
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account for revenue recognition. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.
The singular performance obligation of our customer contracts for product and machine sales is determined by each individual purchase order and the respective products ordered, with revenue being recognized at a point-in-time when the obligation under the terms of the agreement is satisfied and product control is transferred to our customer. Specifically, control transfers to our customers when the product is delivered to, installed or picked up by our customers based upon applicable shipping terms, as our customers can direct the use and obtain substantially all of the remaining benefits from the product at this point in time. The performance obligations in our customer contracts for product are generally satisfied within 30 days.
The singular performance obligation of our customer contracts for time and material repair and maintenance equipment service is the performance of the repair and maintenance with revenue being recognized at a point-in-time when the repair and maintenance is completed.
The singular performance obligation of our customer repair and maintenance equipment service contracts is the performance of the repair and maintenance with revenue being recognized over the time the service is expected to be performed. Our customers are billed for service contracts in advance of performance and therefore we have contract liability on our balance sheet.
Significant Payment Terms
In general, within our customer contracts, the purchase order identifies the product, quantity, price, pick-up allowances, payment terms and final delivery terms. Although some payment terms may be more extended, presently the majority of our payment terms are 30 days. As a result, we have used the available practical expedient and, consequently, do not adjust our revenues for the effects of a significant financing component.
Shipping
All amounts billed to customers related to shipping and handling are classified as revenues; therefore, we recognize revenue for shipping and handling fees at the time the products are shipped or when services are performed. The cost of shipping products to the customer is recognized at the time the products are shipped to the customer and our policy is to classify them as Distribution expenses.
Variable Consideration
In addition to fixed contract consideration, our contracts include some form of variable consideration, including sales discounts, trade promotions and certain other sales and consumer incentives, including rebates and coupon redemptions. In general, variable consideration is treated as a reduction in revenue when the related revenue is recognized. Depending on the specific type of variable consideration, we use the most likely amount method to determine the variable consideration. We believe there will be no significant changes to our estimates of variable consideration when any related uncertainties are resolved with our customers. We review and update our estimates and related accruals of variable consideration each period based on historical experience. Our recorded liability for allowances, end-user pricing adjustments and trade spending was $21.9 million at March 30, 2024 and $18.9 million at September 30, 2023.
Warranties & Returns
We provide all customers with a standard or assurance type warranty. Either stated or implied, we provide assurance the related products will comply with all agreed-upon specifications and other warranties provided under the law. No services beyond an assurance warranty are provided to our customers.
We do not grant a general right of return. However, customers may return defective or non-conforming products. Customer remedies may include either a cash refund or an exchange of the product. We do not estimate a right of return and related refund liability as returns of our products are rare.
Contract Balances
Our customers are billed for service contracts in advance of performance and therefore we have contract liability on our balance sheet as follows:
Beginning balance
Additions to contract liability
Amounts recognized as revenue
Ending balance
Disaggregation of Revenue
See Note 10 for disaggregation of our net sales by class of similar product and type of customer.
Allowance for Estimated Credit Losses
The Company continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses. The allowance for estimated credit losses considers a number of factors including the age of receivable balances, the history of losses, expectations of future credit losses, and the customers’ ability to pay off obligations. The allowance for estimated credit losses was $3.6 million and $3.2 million on March 30, 2024 and September 30, 2023, respectively.
Note 3
Depreciation and Amortization Expense
Depreciation of equipment and buildings is provided for by the straight-line method over the assets’ estimated useful lives. Amortization of improvements is provided for by the straight-line method over the term of the lease or the assets’ estimated useful lives, whichever is shorter. Licenses and rights, customer relationships, franchise agreements and technology arising from acquisitions are amortized by the straight-line method over periods ranging from 2 to 20 years. Depreciation expense was $15.8 million and $13.8 million for the three months ended March 30, 2024 and March 25, 2023, respectively and $31.0 million and $27.2 million for the six months ended March 30, 2024 and March 25, 2023, respectively.
Note 4
Earnings per Share
Basic earnings per common share (“EPS”) excludes dilution and is computed by dividing income available to common shareholders by the weighted average common shares outstanding during the period. Diluted EPS takes into consideration the potential dilution that could occur if securities (stock options and service share units (“RSU”)’s) or other contracts to issue common stock were exercised and converted into common stock. Our calculation of EPS is as follows:
Three months ended March 30, 2024
Income
Per Share
(Numerator)
(Denominator)
Basic EPS
Net earnings available to common stockholders
Effect of dilutive securities
RSU's and options
Diluted EPS
Net earnings available to common stockholders plus assumed conversions
213,851 anti-dilutive shares have been excluded in the computation of EPS for the three months ended March 30, 2024.
Six months ended March 30, 2024
214,932 anti-dilutive shares have been excluded in the computation of EPS for the six months ended March 30, 2024.
Three months ended March 25, 2023
381,735 anti-dilutive shares have been excluded in the computation of EPS for the three months ended March 25, 2023.
Six months ended March 25, 2023
386,510 anti-dilutive shares have been excluded in the computation of EPS for the six months ended March 25, 2023.
Note 5
Share-Based Compensation and Post-Retirement Benefits
At March 30, 2024, the Company has three stock-based employee compensation plans. Share-based compensation expense was recognized as follows:
Stock options
Stock purchase plan
Stock issued to outside directors
Service share units issued to employees
Performance share units issued to employees
Total share-based compensation
The above compensation is net of tax benefits
The fair value of each option grant is estimated on the date of grant using the Black-Scholes options-pricing model.
Expected volatility is based on the historical volatility of the price of our common shares over the past 51 months for 5-year options and 10 years for 10-year options. We use historical information to estimate expected life and forfeitures within the valuation model. The expected term of awards represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Compensation cost is recognized using a straight-line method over the vesting or service period and is net of estimated forfeitures.
The Company did not grant any stock options during the six months ended March 30, 2024 or during the six months ended March 25, 2023.
During the three and six months ended March 30, 2024, the Company issued 1,795 and 11,546 service share units (“RSU”)’s, respectively. During the six months ended March 25, 2023, the Company issued 9,900 RSU’s. Each RSU entitles the awardee to one share of common stock upon vesting. The fair value of the RSU’s was determined based upon the closing price of the Company’s common stock on the date of grant. No such RSU’s were issued in the three months ended March 25, 2023.
During the three and six months ended March 30, 2024, the Company also issued 1,795 and 11,538 performance share units (“PSU”)’s, respectively. During the six months ended March 25, 2023, the Company issued 18,641 PSU’s. Each PSU may result in the issuance of up to two shares of common stock upon vesting, dependent upon the level of achievement of the applicable Performance Goal. The fair value of the PSU’s was determined based upon the closing price of the Company’s common stock on the date of grant. Additionally, the Company applies a quarterly probability assessment in computing this non-cash compensation expense, and any change in estimate is reflected as a cumulative adjustment to expense in the quarter of the change. No such PSU’s were issued in the three months ended March 25, 2023.
Note 6
Income Taxes
We account for our income taxes under the liability method. Under the liability method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates that will be in effect when these differences reverse. Deferred tax expense is the result of changes in deferred tax assets and liabilities.
Additionally, we recognize a liability for income taxes and associated penalties and interest for tax positions taken or expected to be taken in a tax return which are more likely than not to be overturned by taxing authorities (“uncertain tax positions”). We have not recognized a tax benefit in our financial statements for these uncertain tax positions.
The total amount of gross unrecognized tax benefits is $0.3 million on both March 30, 2024 and September 30, 2023, respectively, all of which would impact our effective tax rate over time, if recognized. We recognize interest and penalties related to uncertain tax positions as a part of the provision for income taxes. As of March 30, 2024 and September 30, 2023, the Company has $0.3 million of accrued interest and penalties, respectively.
In addition to our federal tax return and tax returns for Mexico and Canada, we file tax returns in all states that have a corporate income tax. Virtually all the returns noted above are open for examination for three to four years.
Our effective tax rate was 26.6% for the three months ended March 30, 2024, as compared with 25.8% in the prior year period.
Our effective tax rate was 26.6% for the six months ended March 30, 2024, as compared with 25.9% in the prior year period.
Note 7
New Accounting Pronouncements and Policies
In December 2022, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2022-06, "Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848", to provide optional guidance to temporarily ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. Preceding the issuance of ASU 2020-04, which established ASC 848, the United Kingdom's Financial Conduct Authority ("FCA") announced that it would no longer need to persuade or compel banks to submit to LIBOR after December 31, 2021. In response, the FASB established December 31, 2022 as the expiration date for ASC 848. In March 2021, the FCA announced the intended cessation date of the overnight 1-, 3-, 6-, and 12-month USD LIBOR would be June 30, 2023. Because the current relief in Topic 848 may not cover a period of time during which a significant number of modifications may take place, this update deferred the sunset date in Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. This guidance is not expected to have a material impact on our consolidated financial statements and disclosures.
In September 2022, the FASB issued ASU No. 2022-04 “Liabilities – Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations”. This guidance requires annual and interim disclosures for entities that use supplier finance programs in connection with the purchase of goods and services. These amendments are effective for fiscal years beginning after December 15, 2022, except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023. The Company adopted this guidance during the three months ended December 30, 2023. The adoption of this guidance did not have a material impact on our consolidated financial statements and disclosures.
In November 2023, the FASB issued ASU No. 2023-07 “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” This guidance requires all public entities to provide enhanced disclosures about significant segment expenses. The amendments in this ASU are to be applied retrospectively and are effective for fiscal years beginning after December 15, 2023 and for interim periods within fiscal years beginning after December 15, 2024. We are currently assessing the impact of the guidance on our consolidated financial statements and disclosures.
In December 2023, the FASB issued ASU No. 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” This guidance enhances the transparency around income tax information through improvements to income tax disclosures, primarily related to the effective rate reconciliation and income taxes paid, to improve the overall effectiveness of income tax disclosures. The amendments in the ASU are effective for fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently assessing the impact of the guidance on our consolidated financial statements and disclosures.
In March 2024, the SEC adopted final rules to require disclosures about certain climate-related information in registration statements and annual reports. In April 2024, the SEC issued an order to stay the rules pending the completion of judicial review of multiple petitions challenging the rules. The rules will require disclosure of, amongst other things, material climate-related risks, how the board of directors and management oversee such risks, and the actual and potential material impacts of such risks. The rules also require disclosure around material climate-related targets and goals, Scope 1 and Scope 2 green-house gas emissions, and the financial impacts of severe weather events and other natural conditions. If the rules are ultimately implemented, their adoption will be phased, and accordingly, we would be required to begin to make certain disclosures for our annual period ending September 26, 2026, applied prospectively. We are currently assessing the impact of the guidance on our consolidated financial statements and disclosures.
Note 8
Long-Term Debt
In December 2021, the Company entered into an amended and restated loan agreement (the “Credit Agreement”) with our existing banks which provided for up to a $50 million revolving credit facility repayable in December 2026.
Interest accrues, at the Company’s election at (i) the BSBY Rate (as defined in the Credit Agreement), plus an applicable margin, based upon the Consolidated Net Leverage Ratio, as defined in the Credit Agreement, or (ii) the Alternate Base Rate (a rate based on the higher of (a) the prime rate announced from time-to-time by the Administrative Agent, (b) the Federal Reserve System’s federal funds rate, plus 0.50% or (c) the Daily BSBY Rate, plus an applicable margin). The Alternate Base Rate is defined in the Credit Agreement.
The Credit Agreement requires the Company to comply with various affirmative and negative covenants, including without limitation (i) covenants to maintain a minimum specified interest coverage ratio and maximum specified net leverage ratio, and (ii) subject to certain exceptions, covenants that prevent or restrict the Company’s ability to pay dividends, engage in certain mergers or acquisitions, make certain investments or loans, incur future indebtedness, alter its capital structure or line of business, prepay subordinated indebtedness, engage in certain transactions with affiliates, or amend its organizational documents. As of March 30, 2024, the Company is in compliance with all financial covenant terms of the Credit Agreement.
On June 21, 2022, the Company entered into an amendment to the Credit Agreement, the “Amended Credit Agreement” which provided for an incremental increase of $175 million in available borrowings. The Amended Credit Agreement also includes an option to increase the size of the revolving credit facility by up to an amount not to exceed in the aggregate the greater of $225 million or $50 million, plus the Consolidated EBITDA of the Borrowers, subject to the satisfaction of certain terms and conditions.
As of March 30, 2024, $17.0 million was outstanding under the Amended Credit Agreement with a weighted average interest rate of 6.94%. These borrowings have been classified as Long-Term Debt on the Company’s Balance Sheet. As of March 30, 2024, the amount available under the Amended Credit Agreement was $198.2 million, after giving effect to the outstanding letters of credit. As of September 30, 2023, $27.0 million was outstanding under the Credit Agreement. As of September 30, 2023, the amount available under the Amended Agreement was $188.2 million, after giving effect to the outstanding letters of credit.
Note 9
Inventory
Inventories consist of the following:
Finished goods
Raw materials
Packaging materials
Equipment parts and other
Total inventories
Note 10
Segment Information
We principally sell our products to the food service and retail supermarket industries. Sales and results of our frozen beverages business are monitored separately from the balance of our food service business because of different distribution and capital requirements. We maintain separate and discrete financial information for the three operating segments mentioned above which is available to our Chief Operating Decision Maker.
Our 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 segment are soft pretzels, frozen novelties, churros, handheld products and baked goods. Our customers in the Food Service segment include snack bars and food stands in chain, department and discount stores; malls and shopping centers; casual dining restaurants; fast food and casual dining restaurants; stadiums and sports arenas; leisure and theme parks; convenience stores; movie theatres; warehouse club stores; schools, colleges and other institutions. Within the food service industry, our products are purchased by the consumer primarily for consumption at the point-of-sale or for take-away.
Retail Supermarkets
The primary products sold to the retail supermarket channel are soft pretzel products – including SUPERPRETZEL and AUNTIE ANNE’S, frozen novelties including LUIGI’S Real Italian Ice, MINUTE MAID Juice Bars and Soft Frozen Lemonade, WHOLE FRUIT frozen fruit bars and sorbet, DOGSTERS ice cream style treats for dogs, PHILLY SWIRL cups and sticks, ICEE Squeeze-Up Tubes and handheld products. Within the retail supermarket channel, our frozen and prepackaged products are purchased by the consumer for consumption at home.
Frozen Beverages
We sell frozen beverages to the foodservice industry primarily under the names ICEE, SLUSH PUPPIE and PARROT ICE in the United States, Mexico and Canada. We also provide repair and maintenance services to customers for customer-owned equipment.
The Chief Operating Decision Maker for Food Service, Retail Supermarkets and Frozen Beverages reviews monthly detailed operating income statements and sales reports in order to assess performance and allocate resources to each individual segment. Sales and operating income are key variables monitored by the Chief Operating Decision Maker and management when determining each segment’s and the company’s financial condition and operating performance. In addition, the Chief Operating Decision Maker reviews and evaluates depreciation, capital spending and assets of each segment on a quarterly basis to monitor cash flow and asset needs of each segment. Information regarding the operations in these three reportable segments is as follows:
Sales to external customers:
Soft pretzels
Frozen novelties
Churros
Handhelds
Bakery
Total Food Service
Retail Supermarket
Biscuits
Coupon redemption
Total Retail Supermarket
Beverages
Repair and maintenance service
Machines revenue
Total Frozen Beverages
Consolidated sales
Depreciation and amortization:
Total depreciation and amortization
Operating Income:
Total operating income
Capital expenditures:
Total capital expenditures
Assets:
Total assets
Note 11
Goodwill and Intangible Assets
Intangible Assets
Our 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 Beverages segments as of March 30, 2024 and September 30, 2023 are as follows:
September 30, 2023
Gross
Carrying
Amortization
FOOD SERVICE
Indefinite lived intangible assets
Trade names
Amortized intangible assets
Franchise agreements
Customer relationships
Technology
License and rights
TOTAL FOOD SERVICE
RETAIL SUPERMARKETS
Amortized intangible Assets
TOTAL RETAIL SUPERMARKETS
FROZEN BEVERAGES
Distribution rights
Licenses and rights
TOTAL FROZEN BEVERAGES
CONSOLIDATED
Amortizing intangible assets are being amortized by the straight-line method over periods ranging from 2 to 20 years and amortization expense is reflected throughout operating expenses. Aggregate amortization expense of intangible assets for the three months ended March 30, 2024 and March 25, 2023 was $1.6 million and $1.7 million, respectively. Aggregate amortization expense of intangible assets for the six months ended March 30, 2024 and March 25, 2023 was $3.2 million and $3.4 million, respectively.
Estimated amortization expense for the next five fiscal years is approximately $3.1 million in 2024 (excluding the six months ended March 30, 2024), $5.6 million in 2025 and 2026, $4.6 million in 2027, and $4.2 million in 2028.
The weighted amortization period of the intangible assets, in total, is 10.4 years. The weighted amortization period by intangible asset class is 10 years for Technology, 10 years for Customer relationships, 20 years for Licenses & rights, and 10 years for Franchise agreements.
The carrying amounts of goodwill for the Food Service, Retail Supermarket and Frozen Beverage segments are as follows:
Food
Retail
Frozen
Service
Supermarket
March 30, 2024
Note 12
Investments
We have classified our investment securities as marketable securities held to maturity and available for sale. The FASB defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the FASB has established three levels of inputs that may be used to measure fair value:
Level 1
Observable input such as quoted prices in active markets for identical assets or liabilities;
Level 2
Observable inputs, other than Level 1 inputs in active markets, that are observable either directly or indirectly; and
Level 3
Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.
Marketable securities held to maturity and available for sale consist primarily of investments in mutual funds, preferred stock, and corporate bonds. The fair values of mutual funds are based on quoted market prices in active markets and are classified within Level 1 of the fair value hierarchy. The fair values of preferred stock and corporate bonds are based on quoted prices for identical or similar instruments in markets that are not active. As a result, preferred stock and corporate bonds are classified within Level 2 of the fair value hierarchy.
As of March 30, 2024, and September 30, 2023, the Company held no held to maturity investment securities or marketable securities available for sale.
As of March 30, 2024, and September 30, 2023, the Company held no mutual fund, preferred stock, or held to maturity investments. However, during the six months ended March 25, 2023, the Company held mutual funds which sought current income with an emphasis on maintaining low volatility and overall moderate duration, the Company held investments in Fixed-to-Floating Perpetual Preferred Stock which generated income to call dates in 2025, and the Company held corporate bonds which generated fixed income to a maturity dates in 2023.
There were no proceeds from the redemption and sale of marketable securities in the three or six months ended March 30, 2024. Proceeds from the redemption and sale of marketable securities were $2.0 million and $5.3 million in the three and six months ended March 25, 2023, respectively. No gains or losses were recorded in the three or six months ended March 30, 2024. Gains of $59,000 and $22,000 were recorded in the three and six months ended March 25, 2023, which included unrealized gains of $59,000 and $19,000, respectively.
Note 13
Accumulated Other Comprehensive Income (Loss)
Changes to the components of accumulated other comprehensive loss are as follows:
Foreign Currency
Translation Adjustments
March 25, 2023
Note 14
Leases
General Lease Description
We have operating leases with initial noncancelable lease terms in excess of one year covering the rental of various facilities and equipment. Certain of these leases contain renewal options and some provide options to purchase during the lease term. Our operating leases include leases for real estate for some of our office and manufacturing facilities as well as manufacturing and non-manufacturing equipment used in our business. The remaining lease terms for these operating leases range from 1 month to 20 years.
We have finance leases with initial noncancelable lease terms in excess of one year covering the rental of various equipment. These leases are generally for manufacturing and non-manufacturing equipment used in our business. The remaining lease terms for these finance leases range from 1 year to 5 years.
Significant Assumptions and Judgments
Contract Contains a Lease
In evaluating our contracts to determine whether a contract is or contains a lease, we considered the following:
•
Whether explicitly or implicitly identified assets have been deployed in the contract; and
Whether we obtain substantially all of the economic benefits from the use of that underlying asset, and we can direct how and for what purpose the asset is used during the term of the contract.
Allocation of Consideration
In determining how to allocate consideration between lease and non-lease components in a contract that was deemed to contain a lease, we used judgment and consistent application of assumptions to reasonably allocate the consideration.
Options to Extend or Terminate Leases
We have leases which contain options to extend or terminate the leases. On a lease-by-lease basis, we have determined if the extension should be considered reasonably certain to be exercised and thus a right-of-use asset and a lease liability should be recorded.
Discount Rate
The discount rate for leases, if not explicitly stated in the lease, is the incremental borrowing rate, which is the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.
We used the discount rate to calculate the present value of the lease liability at the date of adoption. In the development of the discount rate, we considered our incremental borrowing rate as provided by our lender which was based on cash collateral and credit risk specific to us, and our lease portfolio characteristics.
As of March 30, 2024, the weighted-average discount rate of our operating and finance leases was 5.4% and 3.9%, respectively. As of September 30, 2023, the weighted-average discount rate of our operating and finance leases was 4.4% and 3.9%, respectively.
Practical Expedients and Accounting Policy Elections
We elected the package of practical expedients that permits us not to reassess our prior conclusions about lease identification, lease classification and initial direct costs and made an accounting policy election to exclude short-term leases with an initial term of 12 months or less from our Consolidated Balance Sheets.
Amounts Recognized in the Financial Statements
The components of lease expense were as follows:
Operating lease cost in Cost of goods sold and Operating Expenses
Finance lease cost:
Amortization of assets in Cost of goods sold and Operating Expenses
Interest on lease liabilities in Interest expense & other
Total finance lease cost
Short-term lease cost in Cost of goods sold and Operating Expenses
Total net lease cost
Supplemental balance sheet information related to leases is as follows:
Operating Leases
Total operating lease liabilities
Finance Leases
Finance lease right-of-use assets in Property, plant and equipment, net
Total finance lease liabilities
Supplemental cash flow information related to leases is as follows:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
Supplemental noncash information on lease liabilities arising from obtaining right-of-use assets
Supplemental noncash information on lease liabilities removed due to purchase of leased asset
As of March 30, 2024, the maturities of lease liabilities were as follows:
Six months ending September 28, 2024
2025
2026
2027
2028
Thereafter
Total minimum payments
Less amount representing interest
Present value of lease obligations
As of March 30, 2024 the weighted-average remaining term of our operating and finance leases was 15.8 years and 3.8 years, respectively.
As of September 30, 2023 the weighted-average remaining term of our operating and finance leases was 10.3 years and 4.2 years, respectively.
Note 15
Related Parties
We have related party expenses for distribution and shipping related costs with NFI Industries, Inc. and its affiliated entities (“NFI”). Our director, Sidney R. Brown, is CEO and an owner of NFI Industries, Inc. The Company paid $14.8 million and $29.4 million to NFI in the three and six months ended March 30, 2024 and paid $13.3 million and $27.6 million through the three and six months ended March 25, 2023. Of the amounts paid to NFI, the amount related to transportation management services performed by NFI was $0.2 million and $0.5 million in the three and six months ended March 30, 2024, respectively, and $0.2 million and $0.3 million in the three and six months ended March 25, 2023, respectively. Of the amounts paid to NFI, the amount related to labor management services performed by NFI was $2.2 million and $3.5 million in the three and six months ended March 30, 2024. No labor management services were performed by NFI in the three and six months ended March 25, 2023. The remainder of the costs related to amounts that were passed through to the third-party distribution and shipping vendors that are being managed on the Company’s behalf by NFI. As of March 30, 2024 and September 30, 2023, related party trade payables of approximately $4.7 million and $3.4 million, respectively, were recorded as accounts payable.
In June 2023, the Company began leasing a regional distribution center in Terrell, Texas that was constructed by, and is owned by, a subsidiary of NFI. The distribution center will be operated by NFI for the Company, pursuant to a Service Labor Management Agreement. Under the Service Labor Management Agreement, NFI will provide logistics and warehouse management services. NFI will continue to perform transportation-related management services for the Company as well. At the lease commencement date, $28.7 million was recorded as an operating right-of-use asset, $0.2 million was recorded as a current operating lease liability, and $28.5 million was recorded as a non-current operating lease liability. As of March 30, 2024, $27.9 million was recorded as an operating right-of-use asset, $0.6 million was recorded as a current operating lease liability, and $28.2 million was recorded as a non-current operating lease liability. As of September 30, 2023, $28.4 million was recorded as an operating right-of-use asset, $0.5 million was recorded as a current operating lease liability, and $28.5 million was recorded as a non-current operating lease liability. Lease payments totaling $0.4 and $0.9 million were made to NFI during the three and six-month periods ended March 30, 2024.
In October 2023 and February 2024, the Company began leasing regional distribution centers in Woolwich Township, New Jersey, and Glendale, Arizona, respectively. The distribution centers are operated by NFI for the Company, pursuant to the Service Labor Management Agreement noted in the paragraph above.
All agreements with NFI include terms that are consistent with those that we believe would have been negotiated at an arm’s length with an independent party.
Note 16
Subsequent Events
Events occurring after March 30, 2024, and through the date that these consolidated financial statements were issued, were evaluated to ensure that any subsequent events that met the criteria for recognition have been included, and are as follows:
On April 8, 2024, the Company acquired the Thinsters cookie business from Hain Celestial Group for approximately $7.7 million in cash, subject to certain adjustments. Given the timing of the completion of the acquisition, we are currently in the process of valuing the assets acquired in the acquisition. As a result, we are unable to provide the amounts recognized as of the acquisition date for the major classes of assets acquired and liabilities assumed, and other disclosures.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Statements made in this Form 10-Q that are not historical or current facts are “forward-looking statements” made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements discuss goals, intentions and expectations as to future trends, plans, events, results of operations or financial condition, or state other information relating to us, based on our current beliefs as well as assumptions made by us and information currently available to us. Forward-looking statements generally will be accompanied by words such as "anticipate," "if," "may," "believe," "plan,", "goals," "estimate," "expect," "project," "continue," "forecast," "intend," "may," "could," "should," "will," and other similar expressions. Statements addressing our future operating performance and statements addressing events and developments that we expect or anticipate will occur are also considered as forward-looking statements. This includes, without limitation, our statements and expectations regarding any current or future recovery in our industry, the success of new product innovations, and the future impact of our investments in additional production capacity and logistics and warehousing operations. Such forward-looking statements are inherently uncertain, and readers must recognize that actual results may differ materially from the expectations of management. We intend that such forward-looking statements be subject to the safe harbor provisions of the Securities Act and the Exchange Act.
We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak as of the date made. Any forward-looking statements represent management’s best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties, and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. We disclaim any obligation to revise, update, add or to otherwise correct, any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.
Objective
This Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide a reader of our financial statements with a narrative form from the perspective of our management regarding our financial condition and results of operations, liquidity and certain other factors that may affect our future results. The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q and within the Company’s Annual Report on Form 10-K filed for the fiscal year ended September 30, 2023.
Business Overview
The Company manufactures and sells snack foods and distributes frozen beverages which it markets nationally to the foodservice and retail supermarket industries. The Company’s principal snack food products are soft pretzels, frozen novelties, churros and bakery products. We believe we are the largest manufacturer of soft pretzels in the United States. Other snack food products include donuts, cookies, funnel cake and handheld products. The Company’s principal frozen beverage products are the ICEE brand frozen carbonated beverage and the SLUSH PUPPIE brand frozen non-carbonated beverage. The Company’s Food Service and Frozen Beverage sales are made principally to foodservice customers including snack bar and food stand locations in leading chain, department, discount, warehouse club and convenience stores; malls and shopping centers; fast food and casual dining restaurants; stadiums and sports arenas; leisure and theme parks; movie theaters; independent retailers; and schools, colleges and other institutions. The Company’s Retail Supermarket customers are primarily supermarket chains.
RESULTS OF OPERATIONS – Three and six months ended March 30, 2024
The following discussion provides a review of results for the three and six months ended March 30, 2024 as compared with the three and six months ended March 25, 2023.
Summary of Results
% Change
Other general expense (income)
Comparisons as a Percentage of Net Sales
Chg
Net Sales
Net sales increased by $21.9 million, or 6.5%, to $359.7 million for the three months ended March 30, 2024. Net sales increased by $18.8 million, or 2.7%, to $708.0 million for the six months ended March 30, 2024. Organic sales growth, across both the three months and six months ended March 30, 2024, was driven by growth across all three of the Company’s business segments.
Gross Profit
Gross Profit increased by $17.9 million, or 19.8%, to $108.2 million for the three months ended March 30, 2024. As a percentage of sales, gross profit increased from 26.8% to 30.1%. This increase reflected the impact of improved product and pricing mix along with ongoing productivity improvements and a stabilization of inflationary pressures across the majority of our input costs. Deflationary costs were seen in certain raw materials during the quarter, led by flour, oils, dairy and eggs, with this benefit being somewhat offset by double digit inflationary increases seen in chocolates, and to a lessor extent, inflationary increases seen in sugars/sweeteners, mixes, and meats.
Gross Profit increased by $21.6 million, or 11.9%, to $202.8 million for the six months ended March 30, 2024. As a percentage of sales, gross profit increased from 26.3% to 28.6%. This increase reflected the impact of improved product and pricing mix along with ongoing productivity improvements and a stabilization of inflationary pressures across the majority of our input costs. Deflationary costs were seen in certain raw materials, led by flour, oils, dairy and eggs, with this benefit being somewhat offset by double digit inflationary increases seen in chocolates, and to a lessor extent, inflationary increases seen in sugars/sweeteners, mixes, and meats.
Operating Expenses
Operating Expenses increased $10.1 million, or 12.7%, to $90.3 million for the three months ended March 30, 2024. As a percentage of sales, operating expenses increased from 23.7% to 25.1%. As a percentage of sales, distribution expenses increased from 11.3% to 12.3%, with the increase largely driven by $2.3 million of one-time transition expenses related to the opening of our regional distribution centers. As a percentage of sales, marketing expenses increased from 7.1% to 7.7%, with the increase largely driven by incremental licensing fees on new churro business and additional strategic promotional and marketing spend to support our core brands and new product launches. As a percentage of sales, general and administrative expenses remained relatively flat, slightly decreasing from 5.3% to 5.1%.
Operating Expenses increased $13.5 million, or 8.4%, to $175.2 million for the six months ended March 30, 2024. As a percentage of sales, operating expenses increased from 23.5% to 24.8%. As a percentage of sales, distribution expenses increased from 11.6% to 11.9%, with the increase largely driven by $4.5 million of one-time transition expenses related to the opening of our regional distribution centers. As a percentage of sales, marketing expenses increased from 6.9% to 7.8% with the increase largely driven by incremental licensing fees on new churro business and additional strategic promotional and marketing spend to support our core brands and new product launches. As a percentage of sales, general and administrative expenses remained relatively flat, slightly increasing from 5.0% to 5.2%.
Other Income and Expense
Investment income increased by $0.3 million to $0.7 million and by $0.4 million to $1.5 million for the three months and six months, ended March 30, 2024, respectively. The increases were primary due to the improving interest rate environment in fiscal 2024.
Interest expense decreased by $0.9 million to $0.4 million and by $1.4 million to $1.0 million for the three months and six months, ended March 30, 2024, respectively, due to the decrease in the Company’s average outstanding borrowings on the Amended Credit Agreement for the three and six month periods ended March 30, 2024, as compared to the prior year periods.
Income Tax Expense
Income tax expense increased by $2.4 million, or 102.2%, to $4.8 million for the three months ended March 30, 2024. The effective tax rate was 26.6% as compared with 25.8% in the prior year period.
Income tax expense increased by $2.7 million, or 58.2%, to $7.5 million for the six months ended March 30, 2024. The effective tax rate was 26.6% as compared with 25.9% in the prior year period.
Net Earnings
Net earnings increased by $6.5 million, or 94.0%, for the three months ended March 30, 2024, due to the aforementioned items.
Net earnings increased by $7.1 million, or 52.6%, for the six months ended March 30, 2024, due to the aforementioned items.
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.
Business Segment Discussion
We operate in three segments: Food Service, Retail Supermarket, and Frozen Beverages. The following table is a summary of sales and operating income, which is how we measure segment profit.
Total sales
Operating Income
Food Service Segment Results
Food Service sales to external customers
Total Food Service sales
Food Service operating income
Sales to food service customers increased $11.7 million, or 5.4%, to $230.0 million for the three months ended March 30, 2024. Soft pretzels sales to food service customers decreased 2.1% to $54.3 million, with the decrease largely due to soft consumer trends. Frozen novelties sales increased 4.2% to $27.7 million, led by an approximate 5% increase in Dippin’ Dots sales. Churro sales increased 23.7% to $30.8 million with the increase largely driven by new business growth with a major QSR customer. Sales of bakery products increased by 7.7% to $91.9 million with the growth largely attributable to strong unit volume growth in cookies. Sales of handhelds decreased by 4.0% to $19.5 million driven by softer consumer trends, although, volume sales of our core food service handhelds remained strong in the quarter.
Sales of new products in the first twelve months since their introduction were approximately $12.1 million for the three months ended March 30, 2024, driven primarily by the addition of churros to the menu of a major QSR customer. Sales in the quarter benefited minimally from the impact of the prior fiscal year’s price increases, along with modest increases in volume.
Operating income in our Food Service segment increased $2.8 million in the quarter to $7.9 million, driven by sales growth as well as improved product mix and gross margin performance.
Sales to food service customers increased $2.0 million, or 0.4%, to $458.6 million for the six months ended March 30, 2024. Soft pretzels sales to food service customers decreased 3.0% to $104.5 million with the decrease largely due to soft consumer trends. Frozen novelties sales increased 0.8% to $48.8 million with the increase driven by an increase in Dippin’ Dots sales mostly offset by some volume decreases seen within the category. Churro sales increased 16.2% to $58.9 million with the increase largely driven by new business growth with a major QSR customer. Sales of bakery products remained relatively flat, decreasing by 0.2% to $193.9 million, with a softer first fiscal quarter mostly offset by category growth seen in the second fiscal quarter that was primarily attributable to unit volume growth in cookies. Sales of handhelds decreased by 5.3% to $41.6 million with some of the decrease attributable to pricing declines related to the contractual pricing true-up of certain raw material ingredients seen in the first fiscal quarter.
Sales of new products in the first twelve months since their introduction were approximately $15.7 million for the six months ended March 30, 2024, driven primarily by the addition of churros to the menu of a major QSR customer. Sales in the six-month period benefited minimally from the impact of the prior fiscal year’s price increases, along with modest increases in volume.
Operating income in our Food Service segment increased $2.4 million in the six months ended March 30, 2024, to $13.9 million, driven by sales growth as well as improved product mix and gross margin performance.
Retail Supermarket Segment Results
Retail Supermarket sales to external customers
Total Retail Supermarket sales
Retail Supermarket operating income
Sales of products to retail customers increased $6.5 million, or 14.1%, to $52.9 million for the three months ended March 30, 2024. Soft pretzel sales increased 2.7% to $16.5 million with the increase largely attributable to our continued expansion of our core brands into retail. Frozen novelties sales increased 14.0% to $23.7 million, with the increase largely attributable to growth within our Dogsters and ICEE novelties. Biscuit sales increased 6.0% to $6.2 million, and Handheld sales increased 75.5% to $7.2 million with the increase in handheld sales largely driven by expanded placement of product with a major retailer. Sales of new products in retail supermarkets were minimal in the quarter. Sales in the quarter benefited from the impact of the prior fiscal year’s price increases, along with modest increases in volume.
Operating income in our Retail Supermarkets segment increased $4.6 million in the quarter to $5.1 million, primarily driven by sales growth as well as improved product mix and gross margin performance.
Sales of products to retail customers increased $7.2 million, or 8.1%, to $96.6 million for the six months ended March 30, 2024. Soft pretzel sales increased 14.4% to $34.9 million with the increase largely attributable to the incremental distribution of our core soft pretzel brands. Frozen novelties sales decreased 5.7% to $36.5 million, with the decrease largely due to the decreases in the majority of our retail frozen novelty brands seen during our first fiscal quarter. Biscuit sales decreased 3.9% to $13.2 million, and handheld sales increased 81.7% to $12.7 million with the increase in handheld sales largely driven by expanded placement of product with a major retailer. Sales of new products in retail supermarkets were minimal in the six months ended March 30, 2024. Sales in the six-month period benefited minimally from the impact of the prior fiscal year’s price increases, along with modest increases in volume.
Operating income in our Retail Supermarkets segment increased $4.0 million in the six months ended March 30, 2024 to $5.6 million, primarily driven by sales growth as well as improved product mix and gross margin performance.
Frozen Beverages Segment Results
Frozen Beverages sales to external customers
Total Frozen Beverages sales
Frozen Beverages operating income
Frozen beverage and related product sales increased $3.6 million, or 5.0%, in the three months ended March 30, 2024. Beverage-related sales increased 6.9% to $44.7 million, with the increase driven by consistent consumer trends across most customer channels. Gallon sales were up approximately 1% for the three months ended March 30, 2024. Service revenue increased 2.9% to $23.2 million and machine revenue (primarily sales of frozen beverage machines) remained relatively flat, decreasing by 0.4% to $8.2 million.
Operating income in our Frozen Beverage segment increased $0.3 million in the quarter to $4.9 million, as strong sales drove leverage across the business.
Frozen beverage and related product sales increased $9.6 million, or 6.7% in the six months ended March 30, 2024. Beverage-related sales increased 7.7% to $86.6 million. Gallon sales remained flat for the six months ended March 30, 2024. Service revenue increased 3.0% to $47.8 million. Machine revenue (primarily sales of frozen beverage machines) increased 12.1% to $17.1 million, primarily driven by the strong growth from new clients and convenience customers seen in the first fiscal quarter.
Operating income in our Frozen Beverage segment increased $1.7 million in the six months ended March 30, 2024 to $8.1 million, as strong sales drove leverage across the business.
Liquidity and Capital Resources
Although there are many factors that could impact our operating cash flow, most notably net earnings, we believe that our future operating cash flow, along with our borrowing capacity, our current cash and cash equivalent balances and our investment securities is sufficient to satisfy our cash requirements over the next twelve months and beyond, as well as to fund future growth and expansion.
Cash flows from operating activities
Non-cash items in net income:
●
The increase in depreciation of fixed assets was largely due to prior year purchases of property plant and equipment.
The net cash inflow of $3.2 million in cash flows associated with changes in assets and liabilities, net of effects from purchase of companies, in the six months ended March 30, 2024, was primarily driven by a decrease in accounts receivable of $20.1 million, offset by a $17.0 million increase in inventories. In the prior year, the net cash outflow of $9.6 million was primarily driven by a decrease in accounts payable and accrued liabilities of $25.7 million, offset somewhat by a $10.5 million decrease in accounts receivable and a $4.8 million decrease in prepaid expenses.
Cash flows from investing activities
Purchases of property, plant and equipment include spending for production growth, in addition to acquiring new equipment, infrastructure replacements, and upgrades to maintain competitive standing and position us for future opportunities. The decrease over prior year period was primarily due to the higher rate of strategic spending in the prior year period for new lines at various plants aimed at increasing capacity.
The decrease in proceeds from redemption and sales of marketable securities from prior year period was due to a strategic decision in prior years to no longer re-invest redeemed proceeds into marketable securities given the low interest rate environment that existed in those years.
Cash flows from financing activities
Payment of cash dividends
Borrowings under credit facility and repayment of borrowings under credit facility relate to the Company’s cash draws and repayments made in the six months ended March 30, 2024 to primarily fund working capital needs. The decrease in borrowings from prior year was due to the Company’s increase in cash provided by operations, which lowered its borrowing needs in the six months ended March 30, 2024.
The increase in payment of cash dividends from prior year period was due to the raising of our quarterly dividend during fiscal 2023.
Liquidity
As of March 30, 2024, we had $43.6 million of Cash and Cash Equivalents.
On June 21, 2022, the Company entered into an amendment to the Credit Agreement, the “Amended Credit Agreement” which provided for an incremental increase of $175 million in available borrowings. The Amended Credit Agreement also includes an option to increase the size of the revolving credit facility by up to an amount not to exceed in the aggregate the greater of $225 million or, $50 million plus the Consolidated EBITDA of the Borrowers, subject to the satisfaction of certain terms and conditions.
The Credit Agreement requires the Company to comply with various affirmative and negative covenants, including without limitation (i) covenants to maintain a minimum specified interest coverage ratio and maximum specified net leverage ratio, and (ii) subject to certain exceptions, covenants that prevent or restrict the Company’s ability to pay dividends, engage in certain mergers or acquisitions, make certain investments or loans, incur future indebtedness, alter its capital structure or line of business, prepay subordinated indebtedness, engage in certain transactions with affiliates, or amend its organizational documents. As of March 30, 2024, the Company is in compliance with all financial covenants of the Credit Agreement.
As of March 30, 2024, $17.0 million was outstanding under the Amended Credit Agreement. As of March 30, 2024, the amount available under the Amended Credit Agreement was $198.2 million, after giving effect to the $9.8 million of letters of credit outstanding.
Critical Accounting Policies, Judgments and Estimates
There have been no material changes to our critical accounting policies, judgments and estimates from the information provided in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies, Judgments and Estimates, in our Annual Report on Form 10-K for the year ended September 30, 2023, as filed with the SEC on November 28, 2023.
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 our Annual Report on Form 10-K for the year ended September 30, 2023, as filed with the SEC on November 28, 2023.
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 March 30, 2024, 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 March 30, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is subject, from time to time, to certain legal proceedings and claims that arise from our business. As of the date of this Quarterly Report on Form 10-Q, the Company does not expect that any such proceedings will have a material adverse effect on the Company’s financial position or results of operations.
Item 1A. Risk Factors
For information on risk factors, please refer to “Risk Factors” in Part I, Item 1A of the Company’s Form 10-K for the fiscal year ended September 30, 2023. The risks identified in that report have not changed in any material respect.
Item 2. Unregistered Sales of Equity Securities and the Use of Proceeds
None.
Item 5. Other Information
During the three months ended March 30, 2024, none of our directors or executive officers adopted, modified or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement” as defined in Item 408(c) of Regulation S-K.
Item 6. Exhibits
Exhibit No.
31.1
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
32.1
Certification Pursuant to the 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2
101.1
The following financial information from J&J Snack Foods Corp.'s Quarterly Report on Form 10-Q for the quarter ended March 30, 2024, formatted in XBRL (extensible Business Reporting Language):
(i)
Consolidated Balance Sheets,
(ii)
Consolidated Statements of Earnings,
(iii)
Consolidated Statements of Comprehensive Income,
(iv)
Consolidated Statements of Cash Flows and
the Notes to the Consolidated Financial Statements
104
Cover Page Interactive Data File (formatted as Inline XBRL and containing in Exhibit 101)
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.
Dan Fachner
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
Ken A. Plunk, Senior Vice
President and Chief Financial Officer
(Principal Financial Officer)
(Principal Accounting Officer)