J & J Snack Foods(JJSF) - 2020 Q1 - Quarterly Report

Part I. Financial Information Item 1. Consolidated Financial Statements This section presents the unaudited consolidated financial statements and accompanying notes for the period ended December 28, 2019 Consolidated Balance Sheets | Metric | Dec 28, 2019 (unaudited) (in thousands) | Sep 28, 2019 (in thousands) | | :--- | :--- | :--- | | Assets | | | | Total current assets | $495,146 | $506,357 | | Property, plant and equipment, net | $263,630 | $253,448 | | Goodwill | $119,484 | $102,511 | | Other intangible assets, net | $75,848 | $54,922 | | Operating lease right-of-use assets | $67,376 | $- | | Total Assets | $1,096,106 | $1,019,339 | | Liabilities and Stockholders' Equity | | | | Total current liabilities | $134,260 | $121,234 | | Noncurrent operating lease liabilities | $56,465 | $- | | Total stockholders' equity | $842,520 | $833,751 | | Total Liabilities and Stockholders' Equity | $1,096,106 | $1,019,339 | - Total Assets increased by $76.77 million (7.5%) from September 28, 2019, to December 28, 2019, primarily driven by increases in goodwill and other intangible assets due to acquisitions, and the recognition of operating lease right-of-use assets[8][10] Consolidated Statements of Earnings | Metric | Three months ended Dec 28, 2019 (in thousands) | Three months ended Dec 29, 2018 (in thousands) | Change (YoY) | | :--- | :--- | :--- | :--- | | Net Sales | $282,897 | $271,612 | +4.15% | | Cost of goods sold | $205,036 | $194,749 | +5.28% | | Gross Profit | $77,861 | $76,863 | +1.30% | | Total Operating Expenses | $56,158 | $54,781 | +2.51% | | Operating Income | $21,703 | $22,082 | -1.72% | | Earnings before income taxes | $23,463 | $23,095 | +1.60% | | Income tax expense | $6,404 | $5,569 | +14.99% | | NET EARNINGS | $17,059 | $17,526 | -2.66% | | Earnings per diluted share | $0.89 | $0.93 | -4.30% | | Weighted average diluted shares | 19,144 | 18,897 | +1.30% | - Net Sales increased by 4% year-over-year, but Net Earnings decreased by 3% due to higher cost of goods sold, increased income tax expense, and a slight decrease in operating income[13][14][102] Consolidated Statements of Comprehensive Income | Metric | Three months ended Dec 28, 2019 (in thousands) | Three months ended Dec 29, 2018 (in thousands) | | :--- | :--- | :--- | | Net Earnings | $17,059 | $17,526 | | Foreign currency translation adjustments | $810 | $(1,359) | | Total Other Comprehensive Loss | $810 | $(1,359) | | Comprehensive Income | $17,869 | $16,167 | - Comprehensive Income increased by $1.7 million (10.5%) year-over-year, primarily driven by a positive foreign currency translation adjustment of $810,000 in 2019 compared to a negative adjustment of $1,359,000 in 2018[16][88] Consolidated Statements of Changes In Stockholders' Equity | Metric | Balance at Sep 28, 2019 (in thousands) | Balance at Dec 28, 2019 (in thousands) | | :--- | :--- | :--- | | Common Stock Amount | $45,744 | $47,511 | | Accumulated Other Comprehensive Loss | $(12,988) | $(12,178) | | Retained Earnings | $800,995 | $807,187 | | Total Stockholders' Equity | $833,751 | $842,520 | - Total Stockholders' Equity increased by $8.77 million from September 28, 2019, to December 28, 2019, driven by net earnings of $17.06 million and share-based compensation, partially offset by dividends declared of $10.87 million[18] Consolidated Statements of Cash Flows | Metric | Three months ended Dec 28, 2019 (in thousands) | Three months ended Dec 29, 2018 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $33,569 | $32,811 | | Net cash used in investing activities | $(46,857) | $(11,884) | | Net cash used in financing activities | $(9,065) | $(6,817) | | Net (decrease) increase in cash and cash equivalents | $(22,068) | $13,235 | | Cash and cash equivalents at end of period | $170,327 | $124,714 | - Net cash provided by operating activities remained stable year-over-year, however, a significant increase in cash used in investing activities, primarily due to payments for purchases of companies ($44.97 million), led to a net decrease in cash[20][21] Notes to the Consolidated Financial Statements Note 1 Basis of Presentation - The unaudited statements are prepared per GAAP for interim reporting and contain only normal recurring adjustments, with results not necessarily indicative of the full year due to seasonality[23][24] Note 2 Revenue Recognition - Revenue is recognized at a point-in-time when control transfers to the customer, while service contract revenue is recognized over time[27][28][31] - Variable consideration like sales discounts is treated as a revenue reduction, with the related liability at approximately $15.1 million as of December 28, 2019[34] | Contract Liability | Three Months Ended Dec 28, 2019 (in thousands) | Three Months Ended Dec 29, 2018 (in thousands) | | :--- | :--- | :--- | | Beginning Balance | $1,334 | $1,999 | | Additions | $1,275 | $372 | | Recognized as revenue | $(1,515) | $(448) | | Ending Balance | $1,094 | $1,923 | Note 3 Depreciation and Amortization - Depreciation and amortization are calculated using the straight-line method over the assets' estimated useful lives or lease terms[40] | Metric | Three months ended Dec 28, 2019 (in thousands) | Three months ended Dec 29, 2018 (in thousands) | | :--- | :--- | :--- | | Depreciation expense | $11,887 | $10,774 | Note 4 Earnings Per Share | Metric | Three months ended Dec 28, 2019 | Three months ended Dec 29, 2018 | | :--- | :--- | :--- | | Net Earnings available to common stockholders (in thousands) | $17,059 | $17,526 | | Weighted average basic shares (in thousands) | 18,898 | 18,765 | | Basic EPS | $0.90 | $0.93 | | Weighted average diluted shares (in thousands) | 19,144 | 18,897 | | Diluted EPS | $0.89 | $0.93 | - Diluted EPS decreased to $0.89 from $0.93 in the prior year, reflecting lower net earnings and an increase in weighted average diluted shares[42] Note 5 Share-Based Compensation | Metric | Dec 28, 2019 (in thousands) | Dec 29, 2018 (in thousands) | | :--- | :--- | :--- | | Stock Options | $965 | $629 | | Stock purchase plan | $202 | $69 | | Total share-based compensation | $1,167 | $698 | | Net of tax benefits | $132 | $274 | - Total share-based compensation expense increased by 67.2% to $1.167 million for the quarter compared to the prior year[43] Note 6 Income Taxes - The Company accounts for income taxes using the liability method, with unrecognized tax benefits totaling $414,000 at quarter-end[44][45] - The effective tax rate was 27.3% for the current quarter, compared to 28.0% in the prior year's quarter (excluding a one-time benefit in the prior year)[47][102] Note 7 New Accounting Pronouncements - The Company adopted new lease accounting guidance, recognizing a right-of-use asset of $71 million and a lease liability of $72 million without impacting operations or cash flows[48] - The Company is currently evaluating the impact of new guidance on current expected credit losses (CECL), effective in Q1 fiscal year 2021[48] Note 8 Inventories | Inventory Category | Dec 28, 2019 (in thousands) | Sep 28, 2019 (in thousands) | | :--- | :--- | :--- | | Finished goods | $61,374 | $53,225 | | Raw materials | $23,728 | $22,146 | | Packaging materials | $9,189 | $9,703 | | Equipment parts and other | $31,498 | $31,091 | | Total Inventories | $125,789 | $116,165 | - Total inventories increased by $9.62 million (8.3%) from the previous quarter, primarily driven by an increase in finished goods[49] Note 9 Segment Information - The Company operates in three segments: Food Service, Retail Supermarkets, and Frozen Beverages, with a recent reclassification of biscuit operations to the Retail Supermarket segment[50][55] | Segment | Sales to External Customers (Dec 28, 2019, in thousands) | Sales to External Customers (Dec 29, 2018, in thousands) | Operating Income (Dec 28, 2019, in thousands) | Operating Income (Dec 29, 2018, in thousands) | | :--- | :--- | :--- | :--- | :--- | | Food Service | $183,448 | $180,026 | $18,034 | $17,697 | | Retail Supermarket | $29,426 | $31,279 | $2,217 | $2,211 | | Frozen Beverages | $70,023 | $60,307 | $1,452 | $2,174 | | Consolidated Sales | $282,897 | $271,612 | $21,703 | $22,082 | - Food Service sales grew 2%, Retail Supermarket sales fell 6% due to price increases, and Frozen Beverages sales rose 16% (12% organic), though its operating income declined[91][95][97][98] Note 10 Goodwill and Other Intangible Assets | Segment | Goodwill (Dec 28, 2019, in thousands) | Goodwill (Sep 28, 2019, in thousands) | | :--- | :--- | :--- | | Food Service | $61,189 | $61,189 | | Retail Supermarket | $4,146 | $4,146 | | Frozen Beverages | $54,149 | $37,176 | | Total Goodwill | $119,484 | $102,511 | - Goodwill increased by $16.973 million in the Frozen Beverages segment due to the acquisition of ICEE Distributors[57][58][61] - Aggregate amortization expense for intangible assets was $843,000 for the quarter, with an estimated $3.1 million for fiscal year 2020[59][60] Note 11 Marketable Securities - Marketable securities are classified as held-to-maturity or available-for-sale, with fair values determined using Level 1 and Level 2 inputs[62][63] | Security Type | Amortized Cost (Dec 28, 2019, in thousands) | Fair Market Value (Dec 28, 2019, in thousands) | | :--- | :--- | :--- | | Held to Maturity | | | | Corporate Bonds | $116,003 | $117,231 | | Certificates of Deposit | $2,880 | $2,885 | | Total held to maturity | $118,883 | $120,116 | | Available for Sale | | | | Mutual Funds | $3,588 | $3,199 | | Preferred Stock | $13,126 | $13,342 | | Total available for sale | $16,714 | $16,541 | - Proceeds from redemption and sale of marketable securities were $18.782 million for the quarter, resulting in minor losses[66] Note 12 Accumulated Other Comprehensive Loss | Metric | Three months ended Dec 28, 2019 (in thousands) | Three months ended Dec 29, 2018 (in thousands) | | :--- | :--- | :--- | | Beginning Balance | $(12,988) | $(11,994) | | Other comprehensive gain (loss) | $810 | $(1,359) | | Ending Balance | $(12,178) | $(13,438) | - Accumulated other comprehensive loss decreased during the quarter due to a positive foreign currency translation adjustment of $810,000[69] Note 13 Acquisitions - On October 1, 2019, the Company acquired ICEE Distributors LLC for $44.97 million, adding approximately $13 million in annual sales[72] | Acquired Assets (in thousands) | Amount | | :--- | :--- | | Accounts Receivable, net | $722 | | Inventories | $866 | | Property, plant & equipment, net | $4,851 | | Customer Relationships | $569 | | Distribution rights | $21,200 | | Goodwill | $16,973 | | Accounts Payable | $(210) | | Purchase Price | $44,970 | - The acquisition is not considered material, and proforma results were consistent with reported net sales and net earnings[73] Note 14 Leases - The Company holds operating and finance leases for facilities and equipment with remaining terms of up to 13 years[74][75][80] | Lease Metric | Three Months Ended Dec 28, 2019 (in thousands) | | :--- | :--- | | Operating lease cost | $4,279 | | Finance lease cost | $93 | | Total net lease cost | $4,372 | | Operating lease right-of-use assets | $67,376 | | Total operating lease liabilities | $70,133 | | Finance lease right-of-use assets | $957 | | Total finance lease liabilities | $970 | - The weighted-average remaining term is 7.3 years for operating leases and 4.0 years for finance leases as of December 28, 2019[85] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes financial condition and results for the quarter, comparing performance across key business segments to the prior year Liquidity and Capital Resources - Primary liquidity sources are cash, investments, and future cash from operations, which are deemed sufficient to fund growth[85][86] - No common stock was repurchased, and a $50 million revolving credit facility remains unused[87][89] - Foreign currency translation adjustments resulted in an $810,000 decrease in accumulated other comprehensive loss in Q1 2020[88] Results of Operations - Net sales increased by 4% to $282.897 million for the quarter, or 3% excluding the ICEE Distributors acquisition[90] - Gross profit margin decreased to 27.52% from 28.30% due to lower volumes, product mix changes, and higher costs in the frozen beverages segment[99] - Operating income decreased by 2% to $21.703 million, and net earnings decreased by 3% to $17.059 million[101][102] Food Service Segment Performance - Sales increased by 2% to $183.448 million, driven by a 2% rise in soft pretzel sales and an 8% increase in churro sales[91][92] - Handheld sales decreased 18% due to lower co-pack sales[93] - Operating income increased slightly to $18.034 million, driven by higher volume and improved bakery operations[94] Retail Supermarkets Segment Performance - Sales decreased by 6% to $29.426 million, primarily due to volume and placement losses from price increases implemented a year ago[95] - Operating income remained stable at $2.217 million, as higher prices offset the negative impact of lower volume[95][96] Frozen Beverages Segment Performance - Sales increased 16% to $70.023 million, or 12% excluding the ICEE Distributors acquisition, with beverage and service revenue both up 13%[97] - Operating income decreased to $1.452 million from $2.174 million, primarily due to higher costs, including approximately $1 million for headquarters relocation[98] Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company reported no material change in its assessment of sensitivity to market risk since its 2017 annual report - No material change in the Company's assessment of its sensitivity to market risk since the 2017 annual report on Form 10-K[103] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal financial reporting controls - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of December 28, 2019[104] - No material change in the Company's internal control over financial reporting occurred during the quarter ended December 28, 2019[105] Part II. Other Information Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including Sarbanes-Oxley certifications and financial data in Inline XBRL format - Includes Certifications Pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002[110] - Financial information from the quarterly report is formatted in Inline XBRL[110]