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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the period ended
or
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File Number:
J&J SNACK FOODS CORP.
(Exact name of registrant as specified in its charter)
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| (State or other jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification No.) |
(Address of principal executive offices)
Telephone (
Securities registered pursuant to Section 12(b) of the Exchange Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered |
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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.
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☒
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☐ 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).
|
☒
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☐ No |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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☒ | Accelerated filer | ☐ | |
| Smaller reporting company |
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|||
| Non-accelerated filer | ☐ | Emerging growth company |
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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).
As of July 24,2020 there were
INDEX
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Page |
||
| Number | ||
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Part I. |
Financial Information | |
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Item l. |
Consolidated Financial Statements |
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| Consolidated Balance Sheets – June 27, 2020 (unaudited) and September 28, 2019 | 3 | |
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Consolidated Statements of (Loss) Earnings (unaudited) – Three and nine months ended June 27, 2020 and June 29, 2019 |
4 |
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Consolidated Statements of Comprehensive (Loss) Income (unaudited) – Three and nine months Ended June 27, 2020 and June 29, 2019 |
5 |
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Consolidated Statements of Changes In Stockholders’ Equity (unaudited) – Three and nine months Ended June 27, 2020 and June 29, 2019 | 6 |
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| Consolidated Statements of Cash Flows (unaudited) – Nine Months Ended June 27, 2020 and June 29, 2019 | 7 | |
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Notes to the Consolidated Financial Statements (unaudited) | 8 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
27 |
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Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
31 |
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Item 4. |
Controls and Procedures |
31 |
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Part II. |
Other Information |
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Item 6. |
Exhibits | 32 |
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
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June 27, |
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2020 |
September 28, |
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(unaudited) |
2019 |
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Assets |
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Current assets |
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Cash and cash equivalents |
$ |
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$ |
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Marketable securities held to maturity |
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Accounts receivable, net |
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Inventories |
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Prepaid expenses and other |
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Total current assets |
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Property, plant and equipment, at cost |
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Land |
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Buildings |
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Plant machinery and equipment |
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Marketing equipment |
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Transportation equipment |
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Office equipment |
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Improvements |
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Construction in progress |
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Total Property, plant and equipment, at cost |
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Less accumulated depreciation and amortization |
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Property, plant and equipment, net |
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Long-term assets |
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Goodwill |
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Other intangible assets, net |
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Marketable securities held to maturity |
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Marketable securities available for sale |
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Operating lease right-of-use assets |
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Other |
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Total long-term assets |
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Total Assets |
$ |
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$ |
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Liabilities and Stockholders' Equity |
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Current Liabilities |
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Current finance lease liabilities |
$ |
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$ |
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Accounts payable |
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Accrued insurance liability |
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Accrued liabilities |
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Current operating lease liabilities |
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Accrued compensation expense |
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Dividends payable |
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Total current liabilities |
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Noncurrent finance lease liabilities |
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Noncurrent operating lease liabilities |
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Deferred income taxes |
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Other long-term liabilities |
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Stockholders' Equity |
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Preferred stock, $1 par value; authorized 10,000,000 shares; none issued |
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Common stock, no par value; authorized, 50,000,000 shares; issued and outstanding 18,888,000 and 18,895,000 respectively |
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Accumulated other comprehensive loss |
(
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) |
(
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Retained Earnings |
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Total stockholders' equity |
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Total Liabilities and Stockholders' Equity |
$ |
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$ |
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The accompanying notes are an integral part of these statements.
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF (LOSS) EARNINGS
(Unaudited)
(in thousands, except per share amounts)
|
Three months ended |
Nine months ended |
|||||||||||||||
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June 27, |
June 29, |
June 27, |
June 29, |
|||||||||||||
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2020 |
2019 |
2020 |
2019 |
|||||||||||||
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Net Sales |
$ |
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$ |
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$ |
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$ |
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Cost of goods sold |
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Gross Profit |
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Operating expenses |
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Marketing |
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Distribution |
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Administrative |
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Plant shutdown impairment costs |
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Other general (income) expense |
(
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(
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Total operating expenses |
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Operating (loss) income |
(
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Other income (expense) |
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Investment income |
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Interest expense & other |
(
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(
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(Loss) earnings before income taxes |
(
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Income taxes |
(
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) |
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NET (LOSS) EARNINGS |
$ |
(
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) | $ |
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$ |
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$ |
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(Loss) earnings per diluted share |
$ |
(
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) | $ |
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$ |
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$ |
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Weighted average number of diluted shares |
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(Loss) earnings per basic share |
$ |
(
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) | $ |
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$ |
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$ |
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Weighted average number of basic shares |
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The accompanying notes are an integral part of these statements.
J&J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited)
(in thousands)
|
Three months ended |
Nine months ended |
|||||||||||||||
|
June 27, |
June 29, |
June 27, |
June 29, |
|||||||||||||
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2020 |
2019 |
2020 |
2019 |
|||||||||||||
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Net (Loss) Earnings |
$ |
(
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) | $ |
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$ |
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$ |
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|||||||
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Foreign currency translation adjustments |
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(
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) |
(
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Total Other Comprehensive Income (loss) |
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(
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) |
(
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) | ||||||||||
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Comprehensive (Loss) Income |
$ |
(
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) | $ |
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$ |
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$ |
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|||||||
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)
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Accumulated |
||||||||||||||||||||
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Other |
||||||||||||||||||||
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Common Stock |
Comprehensive |
Retained |
||||||||||||||||||
|
Shares |
Amount |
Loss |
Earnings |
Total |
||||||||||||||||
|
Balance at September 28, 2019 |
|
$ |
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$ |
(
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) | $ |
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$ |
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Issuance of common stock upon exercise of stock options |
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Foreign currency translation adjustment |
- |
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Dividends declared |
- |
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(
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) |
(
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) | |||||||||||||
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Share-based compensation |
- |
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Net earnings |
- |
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Balance at December 28, 2019 |
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(
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) |
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Issuance of common stock upon exercise of stock options |
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Issuance of common stock for employee stock purchase plan |
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Foreign currency translation adjustment |
- |
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(
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(
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) | |||||||||||||
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Issuance of common stock under deferred stock plan |
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Dividends declared |
- |
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(
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) |
(
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) | |||||||||||||
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Share-based compensation |
- |
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Repurchase of common stock |
(
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) |
(
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) |
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(
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) | ||||||||||||
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Net earnings |
- |
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|||||||||||||||
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Balance at March 28, 2020 |
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(
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) |
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Foreign currency translation adjustment |
- |
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Dividends declared |
- |
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(
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) |
(
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) | |||||||||||||
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Share-based compensation |
- |
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Net loss |
- |
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(
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) |
(
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) | |||||||||||||
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Balance at June 27, 2020 |
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$ |
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$ |
(
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) | $ |
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$ |
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Accumulated |
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Other |
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Common Stock |
Comprehensive |
Retained |
||||||||||||||||||
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Shares |
Amount |
Loss |
Earnings |
Total |
||||||||||||||||
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Balance at September 29, 2018 |
|
$ |
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$ |
(
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) | $ |
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$ |
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Issuance of common stock upon exercise of stock options |
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|||||||||||||||
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Foreign currency translation adjustment |
- |
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(
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) |
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(
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) | |||||||||||||
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Reclass from accumulated other comprehensive gain |
- |
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(
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) |
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Dividends declared |
- |
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(
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) |
(
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) | |||||||||||||
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Share-based compensation |
- |
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Net earnings |
- |
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Balance at December 29, 2018 |
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(
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) |
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Issuance of common stock upon exercise of stock options |
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Issuance of common stock for employee stock purchase plan |
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Foreign currency translation adjustment |
- |
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Issuance of common stock under deferred stock plan |
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Dividends declared |
- |
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(
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(
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Share-based compensation |
- |
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Repurchase of common stock |
- |
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Net earnings |
- |
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Balance at March 30, 2019 |
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(
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) |
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Issuance of common stock upon exercise of stock options |
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Foreign currency translation adjustment |
- |
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Dividends declared |
- |
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(
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(
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) | |||||||||||||
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Share-based compensation |
- |
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|||||||||||||||
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Repurchase of common stock |
- |
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Net earnings |
- |
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Balance at June 29, 2019 |
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$ |
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$ |
(
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) | $ |
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$ |
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The accompanying notes are an integral part of these statements.
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
|
Nine months ended |
||||||||
|
June 27, |
June 29, |
|||||||
|
2020 |
2019 |
|||||||
|
Operating activities: |
||||||||
|
Net earnings |
$ |
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$ |
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|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
||||||||
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Depreciation of property, plant and equipment |
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Amortization of intangibles and deferred costs |
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Share-based compensation |
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Deferred income taxes |
(
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) |
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|||||
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Loss on marketable securities |
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Plant shutdown impairment costs |
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Other |
(
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) |
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Changes in assets and liabilities net of effects from purchase of companies |
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Decrease (increase) in accounts receivable |
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(
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) | |||||
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Increase in inventories |
(
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) |
(
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(Increase) decrease in prepaid expenses |
(
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) |
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(Decrease) increase in accounts payable and accrued liabilities |
(
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) |
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Net cash provided by operating activities |
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Investing activities: |
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Payment for purchases of companies, net of cash acquired |
(
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) |
(
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) | ||||
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Purchases of property, plant and equipment |
(
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) |
(
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) | ||||
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Purchases of marketable securities |
(
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) |
(
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) | ||||
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Proceeds from redemption and sales of marketable securities |
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Proceeds from disposal of property, plant and equipment |
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Other |
(
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) |
(
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) | ||||
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Net cash used in investing activities |
(
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) |
(
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) | ||||
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Financing activities: |
||||||||
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Payments to repurchase common stock |
(
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) |
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|||||
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Proceeds from issuance of stock |
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||||||
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Payments on capitalized lease obligations |
(
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) |
(
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) | ||||
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Payment of cash dividend |
(
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) |
(
|
) | ||||
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Net cash used in financing activities |
(
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) |
(
|
) | ||||
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Effect of exchange rate on cash and cash equivalents |
(
|
) |
(
|
) | ||||
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Net (decrease) increase in cash and cash equivalents |
(
|
) |
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|||||
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Cash and cash equivalents at beginning of period |
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|
||||||
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Cash and cash equivalents at end of period |
$ |
|
$ |
|
||||
The accompanying notes are an integral part of these statements.
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
|
Note 1 |
The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10 -Q and Rule 10 - 01 of Regulation S- X. They do not include all information and notes required by generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10 -K for the year ended September 28, 2019. |
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position and the results of operations and cash flows.
The results of operations for the three and nine months ended June 27, 2020 and June 29, 2019 are not necessarily indicative of results for the full year. Sales of our frozen beverages and frozen juice bars and ices are generally higher in the third and fourth quarters due to warmer weather. Additionally, approximately 2/3 of our sales are to venues and locations that have shut down or sharply curtailed their foodservice operations as a result of COVID- 19 resulting in a negative impact on our business beginning in March 2020 which we anticipate will continue to have a negative impact on our business for an undetermined length of time.
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 -K for the fiscal year ended September 28, 2019.
Note 2
Revenue Recognition
When Performance Obligations Are Satisfied
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account for revenue recognition. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.
The singular performance obligation of our customer contracts for product and machine sales is determined by each individual purchase order and the respective products ordered, with revenue being recognized at a point-in-time when the obligation under the terms of the agreement is satisfied and product control is transferred to our customer. Specifically, control transfers to our customers when the product is delivered to, installed or picked up by our customers based upon applicable shipping terms, as our customers can direct the use and obtain substantially all of the remaining benefits from the product at this point in time. The performance obligations in our customer contracts for product are generally satisfied within 30 days.
The singular performance obligation of our customer contracts for time and material repair and maintenance equipment service is the performance of the repair and maintenance with revenue being recognized at a point-in-time when the repair and maintenance is completed.
The singular performance obligation of our customer repair and maintenance equipment service contracts is the performance of the repair and maintenance with revenue being recognized over the time the service is expected to be performed. Our customers are billed for service contracts in advance of performance and therefore we have 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 approximately $
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:
| (in thousands) | ||||||||||||||||
|
Three months ended |
Nine months ended | |||||||||||||||
|
June 27, |
June 29, |
June 27, |
June 29, |
|||||||||||||
|
2020 |
2019 |
2020 |
2019 |
|||||||||||||
|
Beginning Balance |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Additions to contract liability |
|
|
|
|
||||||||||||
|
Amounts recognized as revenue |
(
|
) |
(
|
) |
(
|
) |
(
|
) | ||||||||
|
Ending Balance |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
Disaggregation of Revenue
See Note 9 for disaggregation of our net sales by class of similar product and type of customer.
Allowance for Doubtful Receivables
We provide an allowance for doubtful receivables after taking into consideration historical experience and other factors. The allowance for doubtful receivables was $
|
Note 3 |
Depreciation of equipment and buildings is provided for by the straight-line method over the assets’ estimated useful lives. Amortization of improvements is provided for by the straight-line method over the term of the lease or the assets’ estimated useful lives, whichever is shorter. Licenses and rights, customer relationships and non-compete agreements arising from acquisitions are amortized by the straight-line method over periods ranging from
|
|
Note 4 |
Basic earnings per common share (EPS) excludes dilution and is computed by dividing income available to common shareholders by the weighted average common shares outstanding during the period. Diluted EPS takes into consideration the potential dilution that could occur if securities (stock options) or other contracts to issue common stock were exercised and converted into common stock. Our calculation of EPS is as follows: |
|
Three Months Ended June 27, 2020 |
||||||||||||
|
Loss |
Shares |
Per Share |
||||||||||
|
(Numerator) |
(Denominator) |
Amount |
||||||||||
|
(in thousands, except per share amounts) |
||||||||||||
|
Basic EPS |
||||||||||||
|
Net Loss available to common stockholders |
$ |
(
|
) |
|
$ |
(
|
) | |||||
|
Effect of Dilutive Securities |
||||||||||||
|
Options |
|
|
|
|||||||||
|
Diluted EPS |
||||||||||||
|
Net Loss available to common stockholders plus assumed conversions |
$ |
(
|
) |
|
$ |
(
|
) | |||||
|
Nine Months Ended June 27, 2020 |
||||||||||||
|
Income |
Shares |
Per Share |
||||||||||
|
(Numerator) |
(Denominator) |
Amount |
||||||||||
|
(in thousands, except per share amounts) |
||||||||||||
|
Basic EPS |
||||||||||||
|
Net Earnings available to common stockholders |
$ |
|
|
$ |
|
|||||||
|
Effect of Dilutive Securities |
||||||||||||
|
Options |
|
|
|
|||||||||
|
Diluted EPS |
||||||||||||
|
Net Earnings available to common stockholders plus assumed conversions |
$ |
|
|
$ |
|
|||||||
|
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 |
$ |
|
|
$ |
|
|||||||
|
Effect of Dilutive Securities |
||||||||||||
|
Options |
|
|
(
|
) | ||||||||
|
Diluted EPS |
||||||||||||
|
Net Earnings available to common stockholders plus assumed conversions |
$ |
|
|
$ |
|
|||||||
|
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 |
$ |
|
|
$ |
|
|||||||
|
Effect of Dilutive Securities |
||||||||||||
|
Options |
|
|
(
|
) | ||||||||
|
Diluted EPS |
||||||||||||
|
Net Earnings available to common stockholders plus assumed conversions |
$ |
|
|
$ |
|
|||||||
|
Note 5 |
At June 27, 2020, the Company has three stock-based employee compensation plans. Share-based compensation expense was recognized as follows: |
|
Three months ended |
Nine months ended |
|||||||||||||||
|
June 27, |
June 29, |
June 27, |
June 29, |
|||||||||||||
|
2020 |
2019 |
2020 |
2019 |
|||||||||||||
|
Stock Options |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Stock purchase plan |
|
|
|
|
||||||||||||
|
Stock issued to an outside director |
|
|
|
|
||||||||||||
|
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 with the following weighted average assumptions used for grants in fiscal
2020
nine
months: expected volatility of
During the fiscal year
2020
nine
month period, the Company granted
161,682
stock options. The weighted-average grant date fair value of these options was
$
During the fiscal year
2019
nine
month period, the Company granted
Expected volatility is based on the historical volatility of the price of our common shares over the past
|
Note 6 |
We account for our income taxes under the liability method. Under the liability method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates that will be in effect when these differences reverse. Deferred tax expense is the result of changes in deferred tax assets and liabilities. |
Additionally, we recognize a liability for income taxes and associated penalties and interest for tax positions taken or expected to be taken in a tax return which are more likely than not to be overturned by taxing authorities (“uncertain tax positions”). We have not recognized a tax benefit in our financial statements for these uncertain tax positions.
The total amount of gross unrecognized tax benefits is $
In addition to our federal tax return and tax returns for Mexico and Canada, we file tax returns in all states that have a corporate income tax with virtually all open for examination for
three
to
four
years.
Net earnings in last year’s
nine
months benefitted by a reduction of approximately $
|
Note 7 |
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. We adopted the guidance on
September 29, 2019
using this alternate transition method, but we did
not
record a cumulative-effect adjustment from initially applying the standard. 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. We have completed the implementation of a lease accounting system to enable the preparation of financial information and have implemented relevant accounting policies and internal controls surrounding the lease accounting process. As a result of adoption, we recognized a right-of-use asset and lease liability of $
|
In June 2016, the FASB issued guidance to update the methodology used to measure current expected credit losses (CECL). This guidance applies to financial assets measured at amortized cost, including loans, held-to-maturity debt securities, net investments in leases, and trade accounts receivable as well as certain off-balance sheet credit exposures, such as loan commitments. This guidance replaces the current incurred loss impairment methodology with a methodology to reflect CECL and requires consideration of a broader range of reasonable and supportable information to explain credit loss estimates. The guidance must be adopted using a modified retrospective transition method through a cumulative-effect adjustment to retained earnings/(deficit) in the period of adoption. This guidance will be effective beginning in the first quarter of our fiscal year 2021. Early adoption is permitted. We are currently evaluating the impact this guidance will have on our financial statements and related disclosures.
|
Note 8 |
Inventories consist of the following: |
|
June 27, |
September 28, |
|||||||
|
2020 |
2019 |
|||||||
|
(unaudited) |
||||||||
|
(in thousands) |
||||||||
|
Finished goods |
$ |
|
$ |
|
||||
|
Raw materials |
|
|
||||||
|
Packaging materials |
|
|
||||||
|
Equipment parts and other |
|
|
||||||
|
Total Inventories |
$ |
|
$ |
|
||||
$
|
Note 9 |
We principally sell our products to the food service and retail supermarket industries. Sales and results of our frozen beverages business are monitored separately from the balance of our food service business because of different distribution and capital requirements. We maintain separate and discrete financial information for the three operating segments mentioned above which is available to our Chief Operating Decision 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’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. Due to a change in management and the reporting of our MARYB’s biscuit operations, which had sales and operating income of $
|
Three months ended |
Nine months ended |
|||||||||||||||
|
June 27, |
June 29, |
June 27, |
June 29, |
|||||||||||||
|
2020 |
2019 |
2020 |
2019 |
|||||||||||||
|
Sales to External Customers: |
||||||||||||||||
|
Food Service |
||||||||||||||||
|
Soft pretzels |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Frozen juices and ices |
|
|
|
|
||||||||||||
|
Churros |
|
|
|
|
||||||||||||
|
Handhelds |
|
|
|
|
||||||||||||
|
Bakery |
|
|
|
|
||||||||||||
|
Other |
|
|
|
|
||||||||||||
|
Total Food Service |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Retail Supermarket |
||||||||||||||||
|
Soft pretzels |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Frozen juices and ices |
|
|
|
|
||||||||||||
|
Biscuits |
|
|
|
|
||||||||||||
|
Handhelds |
|
|
|
|
||||||||||||
|
Coupon redemption |
(
|
) |
(
|
) |
(
|
) |
(
|
) | ||||||||
|
Other |
|
|
|
|
||||||||||||
|
Total Retail Supermarket |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Frozen Beverages |
||||||||||||||||
|
Beverages |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Repair and maintenance service |
|
|
|
|
||||||||||||
|
Machines revenue |
|
|
|
|
||||||||||||
|
Other |
|
|
|
|
||||||||||||
|
Total Frozen Beverages |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Consolidated Sales |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Depreciation and Amortization: |
||||||||||||||||
|
Food Service |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Retail Supermarket |
|
|
|
|
||||||||||||
|
Frozen Beverages |
|
|
|
|
||||||||||||
|
Total Depreciation and Amortization |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Operating (Loss)Income: |
||||||||||||||||
|
Food Service |
$ |
(
|
) | $ |
|
$ |
|
$ |
|
|||||||
|
Retail Supermarket |
|
|
|
|
||||||||||||
|
Frozen Beverages |
(
|
) |
|
(
|
) |
|
||||||||||
|
Total Operating (Loss) Income |
$ |
(
|
) | $ |
|
$ |
|
$ |
|
|||||||
|
Capital Expenditures: |
||||||||||||||||
|
Food Service |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Retail Supermarket |
|
|
|
|
||||||||||||
|
Frozen Beverages |
|
|
|
|
||||||||||||
|
Total Capital Expenditures |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Assets: |
||||||||||||||||
|
Food Service |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Retail Supermarket |
|
|
|
|
||||||||||||
|
Frozen Beverages |
|
|
|
|
||||||||||||
|
Total Assets |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
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 27, 2020 and September 28, 2019 are as follows:
|
June 27, 2020 |
September 28, 2019 |
|||||||||||||||
|
Gross |
Gross |
|||||||||||||||
|
Carrying |
Accumulated |
Carrying |
Accumulated |
|||||||||||||
|
Amount |
Amortization |
Amount |
Amortization |
|||||||||||||
|
(in thousands) |
||||||||||||||||
|
FOOD SERVICE |
||||||||||||||||
|
Indefinite lived intangible assets |
||||||||||||||||
|
Trade names |
$ |
|
$ | - | $ |
|
$ | - | ||||||||
|
Amortized intangible assets |
||||||||||||||||
|
Non compete agreements |
|
|
|
|
||||||||||||
|
Customer relationships |
|
|
|
|
||||||||||||
|
License and rights |
|
|
|
|
||||||||||||
|
TOTAL FOOD SERVICE |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
RETAIL SUPERMARKETS |
||||||||||||||||
|
Indefinite lived intangible assets |
||||||||||||||||
|
Trade names |
$ |
|
$ | - | $ |
|
$ | - | ||||||||
|
Amortized Intangible Assets |
||||||||||||||||
|
Trade names |
|
|
|
|
||||||||||||
|
Customer relationships |
|
|
|
|
||||||||||||
|
TOTAL RETAIL SUPERMARKETS |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
FROZEN BEVERAGES |
||||||||||||||||
|
Indefinite lived intangible assets |
||||||||||||||||
|
Trade names |
$ |
|
$ | - | $ |
|
$ | - | ||||||||
|
Distribution rights |
|
- |
|
- | ||||||||||||
|
Amortized intangible assets |
||||||||||||||||
|
Customer relationships |
|
|
|
|
||||||||||||
|
Licenses and rights |
|
|
|
|
||||||||||||
|
TOTAL FROZEN BEVERAGES |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
CONSOLIDATED |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
Fully amortized intangible assets have been removed from the
June 27, 2020
amounts. Intangible assets of $
Amortizing intangible assets are being amortized by the straight-line method over periods ranging from
Estimated amortization expense for the next
five
fiscal years is approximately $
Goodwill
The carrying amounts of goodwill for the Food Service, Retail Supermarket and Frozen Beverage segments are as follows:
| Food | Retail | Frozen | ||||||||||||||
| Service | Supermarket | Beverages | Total | |||||||||||||
| (in thousands) | ||||||||||||||||
|
Balance at June 27, 2020 |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Balance at September 28, 2019 |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
Goodwill of $
|
Note 11 |
We have classified our investment securities as marketable securities held to maturity and available for sale. The FASB defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the FASB has established three levels of inputs that may be used to measure fair value: |
|
Level 1 |
Observable input such as quoted prices in active markets for identical assets or liabilities; |
|
Level 2 |
Observable inputs, other than Level 1 inputs in active markets, that are observable either directly or indirectly; and |
|
Level 3 |
Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions. |
Marketable securities held to maturity and available for sale consist primarily of investments in mutual funds, preferred stock and corporate bonds. The fair values of mutual funds are based on quoted market prices in active markets and are classified within Level 1 of the fair value hierarchy. The fair values of preferred stock, 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 27, 2020 are summarized as follows:
|
Gross |
Gross |
Fair |
||||||||||||||
|
Amortized |
Unrealized |
Unrealized |
Market |
|||||||||||||
|
Cost |
Gains |
Losses |
Value |
|||||||||||||
|
(in thousands) |
||||||||||||||||
|
Corporate Bonds |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Certificates of Deposit |
|
|
|
|
||||||||||||
|
Total marketable securities held to maturity |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
The amortized cost, unrealized gains and losses, and fair market values of our investment securities available for sale at June 27, 2020 are summarized as follows:
|
Gross |
Gross |
Fair |
||||||||||||||
|
Amortized |
Unrealized |
Unrealized |
Market |
|||||||||||||
|
Cost |
Gains |
Losses |
Value |
|||||||||||||
|
(in thousands) |
||||||||||||||||
|
Mutual Funds |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Preferred Stock |
|
|
|
|
||||||||||||
|
Total marketable securities available for sale |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
The mutual funds seek current income with an emphasis on maintaining low volatility and overall moderate duration. The Fixed-to-Floating Perpetual Preferred Stock generate fixed income to call dates in
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
2020
through
2023,
with $
The amortized cost, unrealized gains and losses, and fair market values of our investment securities held to maturity at September 28, 2019 are summarized as follows:
|
Gross |
Gross |
Fair |
||||||||||||||
|
Amortized |
Unrealized |
Unrealized |
Market |
|||||||||||||
|
Cost |
Gains |
Losses |
Value |
|||||||||||||
|
(in thousands) |
||||||||||||||||
|
Corporate Bonds |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Certificates of Deposit |
|
|
|
|
||||||||||||
|
Total marketable securities held to maturity |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
The amortized cost, unrealized gains and losses, and fair market values of our investment securities available for sale at September 28, 2019 are summarized as follows:
|
Gross |
Gross |
Fair |
||||||||||||||
|
Amortized |
Unrealized |
Unrealized |
Market |
|||||||||||||
|
Cost |
Gains |
Losses |
Value |
|||||||||||||
|
(in thousands) |
||||||||||||||||
|
Mutual Funds |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Preferred Stock |
|
|
|
|
||||||||||||
|
Total marketable securities available for sale |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
The amortized cost and fair value of the Company’s held to maturity securities by contractual maturity at June 27, 2020 and September 28, 2019 are summarized as follows:
| June 27, 2020 | September 28, 2019 | |||||||||||||||
|
Fair |
Fair |
|||||||||||||||
|
Amortized |
Market |
Amortized |
Market |
|||||||||||||
|
Cost |
Value |
Cost |
Value |
|||||||||||||
|
(in thousands) |
||||||||||||||||
|
Due in one year or less |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Due after one year through five years |
|
|
|
|
||||||||||||
|
Due after five years through ten years |
|
|
|
|
||||||||||||
|
Total held to maturity securities |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Less current portion |
|
|
|
|
||||||||||||
|
Long term held to maturity securities |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
Proceeds from the redemption and sale of marketable securities were $
Note 12 Changes to the components of accumulated other comprehensive loss are as follows:
|
Three Months Ended June 27, 2020 |
Nine Months Ended June 27, 2020 |
|||||||
|
(unaudited) |
(unaudited) |
|||||||
|
(in thousands) |
(in thousands) |
|||||||
|
Foreign Currency |
Foreign Currency |
|||||||
|
Translation |
Translation |
|||||||
|
Adjustments |
Adjustments |
|||||||
|
Beginning Balance |
$ |
(
|
) | $ |
(
|
) | ||
|
Other comprehensive income (loss) before reclassifications |
|
(
|
) | |||||
|
Ending Balance |
$ |
(
|
) | $ |
(
|
) | ||
|
Three Months Ended June 29, 2019 |
Nine Months Ended June 29, 2019 |
|||||||||||||||||||||||
|
(unaudited) |
(unaudited) |
|||||||||||||||||||||||
|
(in thousands) |
(in thousands) |
|||||||||||||||||||||||
|
Foreign Currency |
Unrealized Holding Gain |
Foreign Currency |
Unrealized Holding Gain |
|||||||||||||||||||||
|
Translation |
on Marketable |
Translation |
on Marketable |
|||||||||||||||||||||
|
Adjustments |
Securities |
Total |
Adjustments |
Securities |
Total |
|||||||||||||||||||
|
Beginning Balance |
$ |
(
|
) | $ |
|
$ |
(
|
) | $ |
(
|
) | $ |
|
$ |
(
|
) | ||||||||
|
Other comprehensive income (loss) before reclassifications |
|
|
|
(
|
) |
|
(
|
) | ||||||||||||||||
|
Amounts reclassified from accumulated other comprehensive income |
|
|
|
|
(
|
) |
(
|
) | ||||||||||||||||
|
Ending Balance |
$ |
(
|
) | $ |
|
$ |
(
|
) | $ |
(
|
) | $ |
|
$ |
(
|
) | ||||||||
Note
13
On
October 1, 2019,
we acquired the assets of ICEE Distributors LLC, based in Bossier City, Louisiana. ICEE Distributors does business in Arkansas, Louisiana and Texas with annual sales of approximately $
On
February 4, 2020,
we acquired the assets of BAMA ICEE, based in Birmingham, Alabama does business in Alabama and Georgia with annual sales of approximately $
The preliminary purchase price allocations for the acquisitions are as follows:
|
(in thousands) |
||||||||||||
|
ICEE |
BAMA |
Total |
||||||||||
|
Distributors |
ICEE |
|||||||||||
|
Accounts Receivable, net |
$ |
|
$ |
|
$ |
|
||||||
|
Inventories |
|
|
|
|||||||||
|
Property, plant & equipment, net |
|
|
|
|||||||||
|
Customer Relationships |
|
|
|
|||||||||
|
Distribution rights |
|
|
|
|||||||||
|
Goodwill |
|
|
|
|||||||||
|
Accounts Payable |
(
|
) |
(
|
) |
(
|
) | ||||||
|
Purchase Price |
$ |
|
$ |
|
$ |
|
||||||
The goodwill recognized is attributable to the assembled workforce of ICEE Distributors and certain other strategic intangible assets that do not meet the requirements for recognition separate and apart from goodwill.
Acquisition costs of $
Our unaudited proforma results, giving effect to this acquisition and assuming an acquisition date of September 29, 2018, would have been:
| (in thousands) | ||||||||||||||||
|
Three months ended |
Nine months ended |
|||||||||||||||
|
June 27, |
June 29, |
June 27, |
June 29, |
|||||||||||||
|
2020 |
2019 |
2020 |
2019 |
|||||||||||||
|
Net Sales |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Net Earnings |
$ |
(
|
) | $ |
|
$ |
|
$ |
|
|||||||
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
We have finance leases with initial noncancelable lease terms in excess of
one
year covering the rental of various equipment. These leases are generally for manufacturing and non-manufacturing equipment used in our business. The remaining lease terms for these finance leases range from
Significant Assumptions and Judgments
Contract Contains a Lease
In evaluating our contracts to determine whether a contract is or contains a lease, we considered the following:
|
• |
Whether explicitly or implicitly identified assets have been deployed in the contract; and |
|
• |
Whether we obtain substantially all of the economic benefits from the use of that underlying asset, and we can direct how and for what purpose the asset is used during the term of the contract. |
Allocation of Consideration
In determining how to allocate consideration between lease and non-lease components in a contract that was deemed to contain a lease, we used judgment and consistent application of assumptions to reasonably allocate the consideration.
Options to Extend or Terminate Leases
We have leases which contain options to extend or terminate the leases. On a lease-by-lease basis, we have determined if the extension should be considered reasonably certain to be exercised and thus a right-of-use asset and a lease liability should be recorded.
Discount Rate
The discount rate for leases, if not explicitly stated in the lease, is the incremental borrowing rate, which is the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.
We used the discount rate to calculate the present value of the lease liability at the date of adoption. In the development of the discount rate, we considered our incremental borrowing rate as provided by our lender which was based on cash collateral and credit risk specific to us, and our lease portfolio characteristics.
As of June 27, 2020, the weighted-average discount rate of our operating and finance leases was 3.3% and 3.1%, 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:
|
Three Months Ended |
Nine Months Ended |
|||||||
|
June 27, 2020 |
June 27, 2020 |
|||||||
|
(in thousands) |
(in thousands) |
|||||||
|
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:
|
June 27, 2020 |
||||
|
(in thousands) |
||||
|
Operating Leases |
||||
|
Operating lease right-of-use assets |
$ |
|
||
|
Current operating lease liabilities |
$ |
|
||
|
Noncurrent operating lease liabilities |
|
|||
| Total operating lease liabilities | $ |
|
||
|
Finance Leases |
||||
|
Finance lease right-of-use assets in Property, plant and equipment, net |
$ |
|
||
|
Current finance lease liabilities |
$ |
|
||
|
Noncurrent finance lease liabilities |
|
|||
|
Total finance lease liabilities |
$ |
|
||
$
Supplemental cash flow information related to leases is as follows:
|
Three Months Ended |
Nine Months Ended |
|||||||
|
June 27, 2020 |
June 27, 2020 |
|||||||
|
(in thousands) |
(in thousands) |
|||||||
|
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 June 27, 2020, the maturities of lease liabilities were as follows:
|
(in thousands)
|
||||||||
|
Operating Leases |
Finance Leases |
|||||||
|
Three months ending September 26, 2020 |
$ |
|
$ |
|
||||
|
2021 |
|
|
||||||
|
2022 |
|
|
||||||
|
2023 |
|
|
||||||
|
2024 |
|
|
||||||
|
Thereafter |
|
|
||||||
|
Total minimum payments |
$ |
|
$ |
|
||||
|
Less amount representing interest |
(
|
) |
(
|
) | ||||
|
Present value of lease obligations |
$ |
|
$ |
|
||||
As of June 27, 2020, the weighted-average remaining term of our operating and finance leases was 7.3 years and 4.0 years, respectively.
As previously disclosed in our 2019 Annual Report on Form 10 -K and under the previous lease accounting standard (Topic 840 ), as of September 28, 2019, future minimum lease payments under noncancelable leases with initial lease terms in excess of one year were as follows:
|
(in thousands) |
||||||||
|
Operating Leases |
Capital Leases |
|||||||
|
2020 |
$ |
|
$ |
|
||||
|
2021 |
|
|
||||||
|
2022 |
|
|
||||||
|
2023 |
|
|
||||||
|
2024 |
|
|
||||||
|
Thereafter |
|
|
||||||
|
Total minimum payments |
$ |
|
$ |
|
||||
Note 15 – Subsequent Event
Net Sales for the
first
4
weeks of our
fourth
quarter ending
September 27, 2020
were down approximately
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 $.575 per share of its common stock payable on July 7, 2020, to shareholders of record as of the close of business on June 15, 2020.
In the three months ended March 28, 2020, we purchased and retired 65,648 shares of our common stock at a cost of $8,972,292. We did not purchase any other shares of our common stock in this fiscal year nor did we purchase any shares of our common stock in fiscal year 2019. 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; 318,858 shares remain to be purchased under this authorization.
In the three months ended June 27, 2020 and June 29, 2019, 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 decrease of $41,000 in accumulated other comprehensive loss in the 2020 third quarter and a decrease of $496,000 in accumulated other comprehensive loss in the 2019 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 $3,070,000 in accumulated other comprehensive loss in the 2020 nine-month period and an increase of $469,000 in accumulated other comprehensive loss in the 2019 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 27, 2020.
RESULTS OF OPERATIONS
Net sales decreased $112,138,000 or 34% to $214,563,000 for the three months and decreased $105,113,000 or 12% to $769,502,000 for the nine months ended June 27, 2020 compared to the three and nine months ended June 29, 2019, respectively. Excluding sales from the acquisition of ICEE Distributors in October 2019 and BAMA ICEE in February 2020, sales decreased 35% for the quarter and decreased about 13% for the nine months.
Sales for the last 5 weeks of the third quarter (our fiscal June) improved to being down approximately 24% from a year ago as parts of the economy that impact our operations began to open up. Approximately 2/3 of the Company’s sales are to venues and locations that have shut down or sharply curtailed their foodservice operations, and therefore we anticipate COVID-19 will continue to have a negative impact on our business. As we have $270 million of cash and marketable securities on our balance sheet, up from $267 million at March 28, 2020, we do not expect to have any liquidity issues, nor do we anticipate a material amount of our assets would be impaired.
FOOD SERVICE
Sales to food service customers decreased $76,735,000 or 40% in the third quarter to $116,621,000 and decreased $77,048,000 or 14% to $471,401,000 for the nine months. Soft pretzel sales to the food service market decreased 62% to $21,384,000 in the three months and 24% to $116,985,000 in the nine months. Frozen juices and ices sales decreased 37% to $8,688,000 in the three months and decreased 17% to $25,222,000 in the nine months. Churro sales to food service customers were down 61% in the quarter to $7,321,000 and were down 23% to $38,466,000 in the nine months. Sales of bakery products decreased $20,847,000 or 23% in the third quarter and decreased $13,719,000 or 5% to $255,016,000 for the nine months. Sales of handhelds decreased $1,102,000 or 13% in the quarter and $3,255,000 or 13% in the nine months. Sales of funnel cake decreased 57%, or $3,181,000, to $2,435,000 in the quarter and $5,311,000, or 29%, to $12,997,000 in the nine months. Sales are down across all product lines as many of the venues and locations where our products are sold have been shut down for some or all of the third quarter due to COVID-19.
Sales of new products in the first twelve months since their introduction were approximately $600,000 in this quarter and $4.7 million in the nine months.
We had an operating loss in the quarter in our Food Service segment of $18,242,000 compared to operating income of $21,030,000 last year and operating income decreased to $7,743,000 from $57,909,000 in the nine months primarily because of lower production and sales volume due to COVID-19. This year’s three months operating loss and nine months operating income were impacted by plant shutdown impairment costs of $5.1 million for the pending shutdown of one of our manufacturing plants. We expect to reduce manufacturing overhead and distribution costs by about $7-8 million annually as a result of this plant closure. This year’s quarter and nine months also included approximately $5 million of costs for employee safety and increased COVID-19 compensation.
RETAIL SUPERMARKETS
Sales of products to retail supermarkets increased $15,735,000 or 38% to $57,502,000 in the third quarter and increased $17,286,000 or 16% in the nine months. Soft pretzel sales for the third quarter were up 74% to $12,716,000 and up 23% to $34,874,000 for the nine months. Sales of frozen juices and ices increased $6,807,000 or 26% to $33,322,000 in the third quarter and increased $7,100,000 or 14% in the nine months. Handheld sales to retail supermarket customers increased 6% to $3,257,000 in the quarter and 13% to $9,135,000 in the nine months. Biscuit sales for the third quarter were up 56% to $8,151,000 and 12% to $21,759,000 for the nine months. Sales were generally higher for all product lines as sales in the year ago periods were impacted by lost volume and placements due the price increases implemented in last year’s first quarter and because of increased sales to supermarkets generally since mid-March 2020 due to COVID-19.
Sales of new products in the third quarter were approximately $500,000 and were approximately $1.0 million for the nine months.
Operating income in our Retail Supermarkets segment was $7,910,000 in this year’s third quarter compared to $3,775,000 in last year’s quarter, a 110% increase and increased to $14,464,000 in this year’s nine months compared to $9,025,000 in last year’s nine months primarily due to higher volume.
FROZEN BEVERAGES
Total frozen beverage segment sales decreased 56% in the three months to $40,440,000 and 21% to $173,602,000 for the nine months. Beverage sales were down 71% to $16,456,000 in the quarter and down 31% to $83,606,000 in the nine months. Excluding sales from the acquisition of ICEE Distributors in October 2019 and BAMA ICEE in February 2020, total frozen beverage segment sales decreased 60% in the quarter and were down 25% for the nine months and beverage sales decreased 78% for the quarter and 39% for the nine months. Gallon sales were down 72% in the quarter and down 36% in the nine months exclusive of ICEE Distributors’ gallons. Service revenue decreased 23% to $17,259,000 in the third quarter and was down 1% at $61,524,000 in the nine months. Machines revenue (primarily sales of frozen beverage machines) were $6,363,000, a decrease of $5,447,000 in the quarter and $27,254,000, a decrease of $6,621,000, in the nine months, with the decrease due to two significant install projects during the prior fiscal year, as well as the slowdown due to COVID-19. Sales are down across all product lines as many of the venues and locations where our products are sold have been shut down for some or all of the third quarter due to COVID-19.
Our Frozen Beverage segment had an operating loss of $9,088,000 compared to operating income of $14,237,000 in last year’s quarter and an operating loss of $8,942,000 for the nine months compared to operating income of $18,961,000 last year primarily as a result of lower sales volume due to COVID-19. This year’s operating income was also impacted by relocation costs of our ICEE’s headquarters of 2.5 million in the nine months.
CONSOLIDATED
Gross profit as a percentage of sales was 17.34% in the third quarter and 31.02% last year. Gross profit as a percentage of sales was 23.98% in the nine month period this year and 29.44% last year. Gross profit percentage decreased for both periods because of lower volume in our food service and frozen beverages segments, higher costs related to production disruptions due to volume mix changes, expenses related to employee safety and increased COVID-19 compensation and reserves of approximately $1.5 million for inventory.
Total operating expenses decreased $5,691,000 in the third quarter and as a percentage of sales increased to 26.4% from 19.1% last year. For the nine months, operating expenses decreased $330,000 and as a percentage of sales increased to 22.3% from 19.6% last year. Operating expenses for both periods this year included $5.1 million of plant shutdown impairment costs for the pending shutdown of one of our manufacturing plants. Marketing expenses increased to 10.2% of sales in this year’s quarter from 8.1% last year and were 8.9% in the nine months compared to 8.0% of sales in last year’s nine months. Distribution expenses were 9.9% of sales in the third quarter and 7.5% of sales in last year’s quarter and were 9.1% in this year’s nine months compared to 8.1% in last year’s nine months. Administrative expenses were 3.9% of sales in the third quarter compared to 3.3% of sales last year in the third quarter and were 3.7% in this year’s nine months compared to 3.4% of sales in last year’s nine months. The percentage increases mentioned above were because of the drop in sales (lower denominators) and our inability to reduce expenses in line with the decrease in sales because of fixed costs that do not fluctuate with sales.
We had an operating loss of $19,420,000 in the three months and operating income of $13,265,000 in the nine months this year compared to operating income of $39,042,000 and $85,895,000 in last years’ three and nine months, respectively.
Investment income decreased to $1,300,000 from $1,953,000 in last year’s quarter due primarily to lower interest rates. Investment income decreased to $2,673,000 from $5,775,000 in the nine month period due to lower interest rates and because of an increase in unrealized losses to $1,708,000 this year from $385,000 last year.
We had a net loss of $12,647,000 in the current three month period compared to net earnings of $30,872,000 last year and net earnings decreased $57,031,000, or 83%, to $11,721,000 for the nine month period this year compared to $68,752,000 for the nine month period last year.
Net earnings in last year’s nine months benefitted by a reduction of approximately $900,000 in tax as the provision for the one time repatriation tax as a result of the Tax Cuts and Job Act of 2017 was reduced as the amount recorded the year prior was an estimate. Excluding the reduction in the provision for the one time repatriation tax, our effective tax rate was 27.5% in last year’s nine months. Our effective tax rate was 26.2% in this year’s nine months.
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 27, 2020, 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 27, 2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
|
Item 6. |
Exhibits |
|
Exhibit No. |
||
|
31.1 & |
||
|
31.2 |
||
|
99.5 & |
||
|
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 27, 2020, formatted in iXBRL (Inline 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 | |
|
|
(v) the Notes to the Consolidated Financial Statements | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.1) |
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: July 31, 2020 |
By: |
/s/ Gerald B. Shreiber |
|
|
|
|
Gerald B. Shreiber |
|
|
|
|
Chairman of the Board, |
|
| Chief Executive | |||
| Officer and Director | |||
| (Principal Executive Officer) | |||
| Dated: July 31, 2020 | /s/ Dennis G. Moore | ||
| Dennis G. Moore, Senior Vice | |||
| President, Chief Financial | |||
| Officer and Director | |||
| (Principal Financial Officer) | |||
| (Principal Accounting Officer) |
No information found
* THE VALUE IS THE MARKET VALUE AS OF THE LAST DAY OF THE QUARTER FOR WHICH THE 13F WAS FILED.
| FUND | NUMBER OF SHARES | VALUE ($) | PUT OR CALL |
|---|
| DIRECTORS | AGE | BIO | OTHER DIRECTOR MEMBERSHIPS |
|---|
No information found
No Customers Found
No Suppliers Found
Price
Yield
| Owner | Position | Direct Shares | Indirect Shares |
|---|