Commission File No. 0-14616
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X
_ No __
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Yes
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No ___
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (
§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not con
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X
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Part I
Item
1
.
Business
General
J & J Snack Foods Corp. (the “Company” or “J & J”) manufactures snack foods and distributes frozen beverages which it markets nationally to the food service and retail supermarket industries. The Company’s principal snack food products are soft pretzels marketed primarily under the brand names SUPERPRETZEL and BAVARIAN BAKERY, frozen juice treats and desserts marketed primarily under the LUIGI’S, WHOLE FRUIT, ICEE, PHILLY SWIRL and MINUTE MAID
*
brand names, churros marketed primarily under the TIO PEPE’S, CALIFORNIA CHURROS and OREO** brand names and bakery products sold primarily under the READI-BAKE, COUNTRY HOME, MARY B’S, DADDY RAY’S and HILL & VALLEY brand names as well as for private label and contract packing. J & J believes it is the largest manufacturer of soft pretzels in the United States. Other snack food products include funnel cake sold under THE FUNNEL CAKE FACTORY brand and dough enrobed handheld products sold under the PATIO brand and other smaller brands as well. The Company’s principal frozen beverage products are the ICEE brand frozen carbonated beverage and the SLUSH PUPPIE brand frozen non-carbonated beverage.
The Company’s Food Service and Frozen Beverages sales are made primarily to food service customers including snack bar and food stand locations in leading chain, department, discount, warehouse club and convenience stores; malls and shopping centers; fast food and casual dining restaurants; stadiums and sports arenas; leisure and theme parks; movie theatres; independent retailers; and schools, colleges and other institutions. The Company’s retail supermarket customers are primarily supermarket chains.
The Company was incorporated in 1971 under the laws of the State of New Jersey.
The Company has made acquisitions as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes thereto.
The Company operates in three business segments: Food Service, Retail Supermarkets and Frozen Beverages. These segments are described below.
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 resou
rces 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 (see Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8 – Financial Statements and Supplementary Data for financial information about segments).
*Minute Maid is a registered trademark of the Coca-Cola Company
**OREO is a registered trademark of Mondelez International, Inc.
Food Service
The primary products sold by the food service segment are soft pretzels, frozen juice treats and desserts, churros, dough enrobed handheld products and baked goods. Our customers in the food service segment include snack bars and food stands in chain, department and discount stores; malls and shopping centers; casual dining restaurants; fast food and casual dining restaurants; stadiums and sports arenas; leisure and theme parks; convenience stores; movie theatres; warehouse club stores; schools, colleges and other institutions. Within the food service industry, our products are purchased by the consumer primarily for consumption at the point-of-sale.
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 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.
Products
Soft Pretzels
The Company’s soft pretzels are sold under many brand names; some of which are: SUPERPRETZEL, PRETZEL FILLERS, PRETZELFILS, GOURMET TWISTS, MR. TWISTER, SOFT PRETZEL BITES, SOFTSTIX, SOFT PRETZEL BUNS, TEXAS TWIST,BAVARIAN BAKERY,SUPERPRETZEL BAVARIAN, NEW YORK PRETZEL, KIM & SCOTT’S GOURMET PRETZELS, SERIOUSLY TWISTED!, BRAUHAUS, AUNTIE ANNE’S*** AND LABRIOLA; and, to a lesser extent, under private labels.
Soft pretzels are sold in the Food Service and Retail Supermarket segments. Soft pretzel sales amounted to 20% of the Company’s revenue in fiscal year 2017, 20% in 2016 and 21% in 2015.
Certain of the Company’s soft pretzels qualify under USDA regulations as the nutritional equivalent of bread for purposes of the USDA school lunch program, thereby enabling a participating school to obtain partial reimbursement of the cost of the Company’s soft pretzels from the USDA.
The Company’s soft pretzels are manufactured according to a proprietary formula. Soft pretzels, ranging in size from one to twenty-four ounces in weight, are shaped and formed by the Company’s twister machines. These soft pretzel tying machines are automated, high-speed machines for twisting dough into the traditional pretzel shape. Additionally, we make soft pretzels which are extruded or shaped by hand. Soft pretzels, after processing, are primarily quick-frozen in either raw or baked form and packaged for delivery.
The Company’s principal marketing program in the Food Service segment includes supplying ovens, mobile merchandisers, display cases, warmers and similar merchandising equipment to the retailer to prepare and promote the sale of soft pretzels. Some of this equipment is proprietary, including combination warmer and display cases that reconstitute frozen soft pretzels while displaying them, thus eliminating the need for an oven. The Company retains ownership of the equipment placed in customer locations, and as a result, customers are not required to make an investment in equipment.
*** AUNTIE ANNE
’s is a registered trademark of Auntie Anne’s LLC.
Frozen Juice Treats and Desserts
The Company’s frozen juice treats and desserts are marketed primarily under the LUIGI’S, WHOLE FRUIT, PHILLY SWIRL, ICEE and MINUTE MAID brand names. Frozen juice treats and desserts are sold in the Food Service and Retail Supermarkets segments. Frozen juice treats and dessert sales were 11% of the Company’s revenue in fiscal year 2017, 12% in 2016 and 13% in 2015.
The Company’s school food service LUIGI’S and WHOLE FRUIT frozen juice bars and cups contain three to four ounces of
100% apple or pineapple juice with no added sugar and 100% of the daily US FDA value of vitamin C. The juice bars are produced in various flavors and are packaged in a sealed push-up paper container referred to as the Milliken M-pak, which the Company believes has certain sanitary and safety advantages.
The balance of the Company’s frozen juice treats and desserts products are manufactured from water, sweeteners and fruit juice concentrates in various flavors and packaging including cups, tubes, sticks, M-paks and pints. Several of the products contain ice cream and WHOLE FRUIT contains pieces of fruit.
Churros
The Company’s churros are sold primarily under the TIO PEPE’S, CALIFORNIA CHURROS and OREO brand names. Churros are sold to the Food Service and Retail Supermarkets segments. Churro sales were 6% of the Company’s sales in fiscal year 2017, 6% in fiscal year 2016 and 6% in 2015. Churros are Hispanic pastries in stick form which the Company produces in several sizes according to a proprietary formula. The churros are deep fried, frozen and packaged. At food service point-of-sale they are reheated and topped with a cinnamon sugar mixture. The Company also sells fruit and crème-filled churros. The Company supplies churro merchandising equipment similar to that used for its soft pretzels.
Handheld Products
The Company's dough enrobed handheld products are marketed under the PATIO, SUPREME STUFFERS and SWEET STUFFERS brand names and under private labels. Handheld products are sold to the Food Service and Retail Supermarket segments. Handheld product sales amounted to 5% of the Company’s sales in fiscal year 2017, 4% in 2016 and 4% in 2015.
Bakery Products
The Company’s bakery products are marketed under the MRS. GOODCOOKIE, READI-BAKE, COUNTRY HOME, MARY B’S, DADDY RAY’S and HILL & VALLEY brand names, and under private labels. Bakery products include primarily biscuits, fig and fruit bars, cookies, breads, rolls, crumb, muffins and donuts. Bakery products are sold to the Food Service segment. Bakery products sales amounted to 32% of the Company’s sales in fiscal year 2017, 30% in 2016 and 31% in 2015.
Frozen Beverages
The Company markets frozen beverages primarily under the names ICEE, SLUSH PUPPIE and PARROT ICE in the United States, Mexico and Canada. Frozen beverages are sold in the Frozen Beverages segment.
Frozen beverage sales amounted to 15% of the Company’s revenue in fiscal year 2017, 15% in 2016 and 15% in 2015.
Under the Company’s principal marketing program for frozen carbonated beverages, it installs frozen beverage dispensers for its ICEE brand at customer locations and thereafter services the machines, arranges to supply customers with ingredients required for production of the frozen beverages, and supports customer retail sales efforts with in-store promotions and point-of-sale materials. In most cases, the Company retains ownership of its dispensers, and as a result, customers are not required to make an investment in equipment or arrange for the ingredients and supplies necessary to produce and market the frozen beverages. The Company sells frozen non-carbonated beverages under the SLUSH PUPPIE and PARROT ICE brands through a distributor network and through its own distribution network. The Company also provides repair and maintenance service to customers for customers’ owned equipment and sells equipment in its Frozen Beverages segment. Revenue from equipment sales and repair and maintenance services totaled 9% of the Company’s sales in fiscal 2017, 10% in 2016 and 9% in 2015.
Each new frozen carbonated customer location requires a frozen beverage dispenser supplied by the Company or by the customer. Company-supplied frozen carbonated dispensers are purchased from outside vendors or rebuilt by the Company.
The Company provides managed service and/or products to approximately 125,000 Company-owned and customer-owned dispensers.
The Company has the rights to market and distribute frozen beverages under the name ICEE to the entire continental United States (except for portions of four states) as well as internationally.
Other Products
Other products sold by the Company include funnel cakes sold under the FUNNEL CAKE FACTORY brand name and smaller amounts of various other food products. These products are sold in the Food Service and Frozen Beverages segments.
Customers
The Company sells its products to two principal channels: food service and retail supermarkets. The primary products sold to the food service channel are soft pretzels, frozen beverages, frozen juice treats and desserts, churros, dough enrobed handheld products and baked goods. The primary products sold to the retail supermarket channel are soft pretzels, frozen juice treats and desserts and dough enrobed handheld products.
We have several large customers that account for a
significant portion of our sales. Our top ten customers accounted for 42%, 42% and 43% of our sales during fiscal years 2017, 2016 and 2015, respectively, with our largest customer accounting for 9% of our sales in 2017, 8% of our sales in 2016 and 8% of our sales in 2015. Three of the ten customers are food distributors who sell our product to many end users. The loss of one or more of our large customers could adversely affect our results of operations. These customers typically do not enter into long-term contracts and make purchase decisions based on a combination of price, product quality, consumer demand and customer service performance. If our sales to one or more of these customers are reduced, this reduction may adversely affect our business. If receivables from one or more of these customers become uncollectible, our operating income would be adversely impacted.
The Food Service and the Frozen Beverages segments sell primarily to food service channels. The Retail Supermarkets segment sells primarily to the retail supermarket channel.
The Company’s customers in the food service segment include snack bars and food stands in chain, department and mass merchandising stores, malls and shopping centers, fast food and casual dining restaurants, stadiums and sports arenas, leisure and theme parks, convenience stores, movie theatres, warehouse club stores, schools, colleges and other institutions, and independent retailers. Machines and machine parts are sold to other food and beverage companies. Within the food service industry, the Company’s products are purchased by the consumer primarily for consumption at the point-of-sale.
The Company sells its products to an estimated 85-90% of supermarkets in the United States. Products sold to retail supermarket customers are primarily soft pretzel products, including SUPERPRETZEL and AUNTIE ANNE’S, frozen juice treats and desserts including LUIGI’S Real Italian Ice, MINUTE MAID Juice Bars and Soft Frozen Lemonade, WHOLE FRUIT frozen fruit bars, WHOLE FRUIT Sorbet, PHILLY SWIRL cups and sticks, MARY B’S biscuits and dumplings, DADDY RAY’S fig and fruit bars, HILL & VALLEY baked goods, ICEE Squeeze-Up Tubes, PATIO burritos and OREO Churros. Within the retail supermarket industry, the Company’s frozen and prepackaged products are purchased by the consumer for consumption at home.
Marketing and Distribution
The Company has developed a national marketing program for its products. For the Food Service and Frozen Beverages segments’ customers, this marketing program includes providing ovens, mobile merchandisers, display cases, warmers, frozen beverage dispensers and other merchandising equipment for the individual customer’s requirements and point-of-sale materials as well as participating in trade shows and in-store demonstrations. The Company’s ongoing advertising and promotional campaigns for its Retail Supermarket segment’s products include trade shows, newspaper advertisements with coupons and consumer advertising campaigns.
The Company develops and introduces new products on a routine basis. The Company evaluates the success of new product introductions on the basis of sales levels, which are reviewed no less frequently than monthly by the Company’s Chief Operating Decision Makers.
The Company’s products are sold through a network of about 100 food brokers, independent sales distributors and the Company’s own direct sales force. For its snack food products, the Company maintains warehouse and distribution facilities in Pennsauken, Bellmawr and Bridgeport, New Jersey; Vernon (Los Angeles) and Colton, California; Brooklyn, New York; Scranton, Pittsburgh, Hatfield and Lancaster, Pennsylvania; Carrollton (Dallas), Texas; Atlanta, Georgia; Moscow Mills (St. Louis), Missouri; Pensacola and Tampa, Florida; Solon, Ohio; Weston, Oregon; Holly Ridge, North Carolina; Alsip (Chicago) and Rock Island, Illinois. Frozen beverages and machine parts are distributed from 164 Company managed warehouse and distribution facilities located in 44 states, Mexico and Canada, which allow the Company to directly service its customers in the surrounding areas. The Company’s products are shipped in refrigerated and other vehicles from the Company’s manufacturing and warehouse facilities on a fleet of Company operated tractor-trailers, trucks and vans, as well as by independent carriers.
Seasonality
The Company’s sales are seasonal because frozen beverage sales and frozen juice treats and desserts sales are generally higher during the warmer months.
Trademarks and Patents
The Company has numerous trademarks, the most important of which are SUPERPRETZEL, TEXAS TWIST, NEW YORK PRETZEL, BAVARIAN BAKERY, MR. TWISTER, SOFT PRETZEL BITES, SOFTSTIX, PRETZEL FILLERS, PRETZELFILS, BRAUHAUS and LABRIOLA for its pretzel products; SHAPE-UPS, WHOLE FRUIT, PHILLY SWIRL and LUIGI’S for its frozen juice treats and desserts; TIO PEPE’S and CALIFORNIA CHURROS for its churros; ARCTIC BLAST, SLUSH PUPPIE and PARROT ICE for its frozen beverages; FUNNEL CAKE FACTORY for its funnel cake products, PATIO for its handheld burritos and MRS. GOODCOOKIE, READI-BAKE, COUNTRY HOME, CAMDEN CREEK, MARY B’S, DADDY RAY’S and HILL & VALLEY for its bakery products.
The Company markets frozen beverages under a license to use the trademark ICEE in all of the continental United States, except for portions of four states, and in Mexico and Canada. Additionally, the Company has the international rights to the trademark ICEE.
The trademarks, when renewed and continuously used, have an indefinite term and are considered important to the Company as a means of identifying its products. The Company considers its trademarks important to the success of its business.
The Company has numerous patents related to the manufacturing and marketing of its product.
Supplies
The Company’s manufactured products are produced from raw materials which are readily available from numerous sources. With the exception of the Company’s churro production equipment, funnel cake production equipment and soft pretzel twisting equipment, all of which are made for J & J by independent third parties, and certain specialized packaging equipment, the Company’s manufacturing equipment is readily available from various sources. Syrup for frozen beverages is purchased primarily from The Coca-Cola Company, Dr Pepper Snapple Group, Inc., the Pepsi Cola Company, and Jogue, Inc. Cups, straws and lids are readily available from various suppliers. Parts for frozen beverage dispensing machines are purchased from several sources. Frozen beverage dispensers are purchased primarily from IMI Cornelius, Inc. and FBD Partnership.
Competition
Snack food and bakery products markets are highly competitive. The Company’s principal products compete against similar and different food products manufactured and sold by numerous other companies, some of which are substantially larger and have greater resources than the Company. As the soft pretzel, frozen juice treat and dessert, bakery products and related markets evolve, additional competitors and new competing products may enter the markets. Competitive factors in these markets include product quality, customer service, taste, price, identity and brand name awareness, method of distribution and sales promotions.
The Company believes it is the only national distributor of soft pretzels. However, there are numerous regional and local manufacturers of food service and retail supermarket soft pretzels as well as several chains of retail pretzel stores.
In Frozen Beverages the Company competes directly with other frozen beverage companies. These include several companies which have the right to use the ICEE name in portions of four states. There are many other regional frozen beverage competitors throughout the country and one large retail chain which uses its own frozen beverage brand.
The Company competes with large soft drink manufacturers for counter and floor space for its frozen beverage dispensing machines at retail locations and with products which are more widely known than the ICEE, SLUSH PUPPIE and PARROT ICE frozen beverages.
The Company competes with a number of other companies in the frozen juice treat and dessert and bakery products markets.
Risks Associated with Foreign Operations
Foreign operations generally involve greater risk than doing business in the United States. Foreign economies differ favorably or unfavorably from the United States’ economy in such respects as the level of inflation and debt, which may result in fluctuations in the value of the country’s currency and real property. Sales of our foreign operations were $31,001,000, $27,075,000 and $25,313,000 in fiscal years 2017, 2016 and 2015, respectively. At September 30, 2017, the total assets of our foreign operations were approximately $39 million or 4.5% of total assets. At September 24, 2016, the total assets of our foreign operations were approximately $29 million or 3.7% of total assets.
Employees
The Company has about 4,200 full and part time employees and approximately 1,500 workers employed by staffing agencies as of September 30, 2017. About 1,200 production and distribution employees throughout the Company are covered by collective bargaining agreements.
The Company considers its employee relations to be good.
Available Information
The Company’s internet address is
www.jjsnack.com. On the investor relations section of its website, the Company provides free access to its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to these reports, as soon as reasonably practicable after such materials are electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”). The information on the website listed above is not and should not be considered part of this annual report on Form 10-K and is not incorporated by reference in this document.
Item
1A. Risk Factors
You should carefully consider the risks described below, together with all of the other information included in this report, in considering our business and prospects. The risks and uncertainties described below are not
the only ones facing us. Additional risks and uncertainties not presently known to us or that we currently deem insignificant may also impair our business operations. Following is a discussion of known potentially significant risks which could result in harm to our business, financial condition or results of operations.
Risks of Shortages or Increased Cost of Raw Materials
We are exposed to the market risks arising from adverse changes in commodity prices, affecting the cost of our raw materials and energy. The raw materials and energy which we use for the production and distribution of our products are largely commodities that are subject to price volatility and fluctuations in availability caused by changes in global supply and demand, weather conditions,
agricultural uncertainty or governmental controls. We purchase these materials and energy mainly in the open market. Our procurement practices are intended to reduce the risk of future price increases, but also may potentially limit the ability to benefit from possible price decreases. If commodity price changes result in increases in raw materials and energy costs, we may not be able to increase our prices to offset these increased costs without suffering reduced volume, revenue and operating income.
General Risks of the Food Industry
Food processors are subject to the risks of adverse changes in general economic conditions; evolving consumer preferences and nutritional and health-related concerns; changes in food distribution channels; federal, state and local food processing controls or other mandates; changes in federal, state, local and international laws and regulations, or in the application of such laws and regulations; consumer product liability claims; risks of product tampering; and negative publicity surrounding actual or perceived product safety deficiencies. The increased buying power of large supermarket chains, other retail outlets and wholesale food vendors could result in greater resistance to price increases and could alter the pattern of customer inventory levels and access to shelf space.
Environmental Risks
The disposal of solid and liquid waste material resulting from the preparation and processing of foods
is subject to various federal, state and local laws and regulations relating to the protection of the environment. Such laws and regulations have an important effect on the food processing industry as a whole, requiring substantially all firms in the industry to incur material expenditures for modification of existing processing facilities and for construction of upgraded or new waste treatment facilities.
We cannot predict what environmental legislation or regulations will be enacted in the future, how existing or future laws or regulations will be administered or interpreted or what environmental conditions may be found to exist. Enactment of more stringent laws or regulations
or more strict interpretation of existing laws and regulations may require additional expenditures by us, some of which could be material.
Risks Resulting from Customer
Concentration
We have several large customers that account for a
significant portion of our sales. Our top ten customers accounted for 42%, 42% and 43% of our sales during fiscal years 2017, 2016 and 2015, respectively, with our largest customer accounting for 9% of our sales in 2017, 8% of our sales in 2016 and 8% of our sales in 2015. Three of the ten customers are food distributors who sell our product to many end users. The loss of one or more of our large customers could adversely affect our results of operations. These customers typically do not enter into long-term contracts and make purchase decisions based on a combination of price, product quality, consumer demand and customer service performance. If our sales to one or more of these customers are reduced, this reduction may adversely affect our business. If receivables from one or more of these customers become uncollectible, our operating income would be adversely impacted.
Competition
Our businesses operate in highly competitive markets. We compete against national and regional manufacturers and
distributors on the basis of price, quality, product variety and effective distribution. Many of our major competitors in the market are larger and have greater financial and marketing resources than we do. Increased competition and anticipated actions by our competitors could lead to downward pressure on prices and/or a decline in our market share, either of which could adversely affect our results. See “Competition” in Item 1 for more information about our competitors.
Risks Relating to Manufacturing
Our ability to purchase, manufacture and distribute products is critical to our success. Damage or disruption to our manufacturing or distribution capabilities due to weather, natural disaster, fire or explosion, terrorism, pandemic, political upheaval,
labor strikes, work stoppages or other reasons could impair our ability to manufacture or distribute our products.
New Jersey Law and Provisions of Our Amended and Restated Certificate of Incorporation and Bylaws May Inhibit a Change In Control
The New Jersey Shareholders' Protection Act, N.J.S.A. 14A:10A-1,
et. seq.
,
may delay, deter or prevent a change in control by prohibiting the Company from engaging in a business combination transaction with an interested shareholder for a period of five years after the person becomes an interested stockholder, even if a majority of our shareholders believe a change in control would be in the best interests of the Company and its shareholders. In addition, our Amended and Restated Certificate of Incorporation and Bylaws contain provisions that may delay, deter or prevent a future acquisition of J & J Snack Foods Corp. not approved by our Board of Directors. This could occur even if our shareholders are offered an attractive value for their shares or if a substantial number or even a majority of our shareholders believe the takeover is in their best interest. These provisions are intended to encourage any person interested in acquiring us to negotiate with and obtain the approval of our Board of Directors in connection with the transaction. Provisions of our Amended and Restated Certificate of Incorporation and Bylaws that could delay, deter or prevent a future acquisition include the following:
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a classified Board of Directors;
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the requirement that our shareholders may only remove Directors for cause;
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limitations on share holdings and voting of certain persons;
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special Director voting rights;
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the ability of the Board of Directors to consider the
interests of various constituencies, including our employees, customers, suppliers, creditors and the local communities in which we operate;
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shareholders do not generally have the right to call special meetings or to act by written consent;
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our Bylaws contain advance notice procedures for nominations of Directors or submission of shareholder proposals at an annual meeting; and
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our Bylaws contain a forum selection clause providing that certain litigation against the Company can only be brought in New Jersey state or federal courts.
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Risks Relating to
Gerald B. Shreiber
Ge
rald B. Shreiber is the founder, President, Chief Executive Officer and Chairman of the Board of Directors of the Company and the current beneficial owner of 20% of its outstanding common stock. Our Amended and Restated Certificate of Incorporation provides that Mr. Shreiber has three votes on any matter to be acted upon by the Board of Directors (subject to certain adjustments). Therefore, he and one other director would have the ability to approve any matter before the Board. The performance of this Company is greatly impacted by his leadership and decisions. His retirement, disability or death may have a significant impact on our future operations.
Risk Related to Increases in our Health Insurance Costs and Costs of Compliance with
the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010
The costs of employee health care insurance have been increasing in recent years due to rising health care costs, legislative changes, and general economic conditions. Additionally, we may incur additional costs because of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the “Health Care Reform Laws”). Provisions of these laws have become and will become effective over the past several years and at various dates over the next several years. Because of the breadth and complexity of these laws and the phased-in nature of the new regulations, as well as other health care reform legislation considered by Congress and state legislatures, we cannot predict with certainty the future effect of these laws on us. A continued increase in health care costs or additional costs incurred as a result of the Health Care Reform Laws or the enforcement of the Health Care Reform Laws or other future health care reform laws imposed by Congress or state legislations could have a negative impact on our financial position
and results of operations.
Risk Related to Product Changes
There are risks in the marketplace related to trade and consumer acceptance of product improvements, packing initiatives and new product introductions.
Risks Related to Change in the Business
Our ability to successfully manage changes to our business processes, including selling, distribution, product capacity, information management systems and the integration of acquisitions, will directly affect our results of operations.
Risks Associated with Foreign Operations
Foreign operations generally involve greater risk than doing business in the United States. Foreign economies differ favorably or unfavorably from the United States’ economy in such respects as the level of inflation and debt, which may result in fluctuations in the value of the country’s currency and real property. Further, there may be less government regulation in various countries, and difficulty in enforcing legal rights outside the United States. Additionally, in some foreign countries, there is the possibility of expropriation or confiscatory taxation limitations on the removal of property or other assets, political or social instability or diplomatic developments which could affect the operations and assets of U.S. companies doing business in that country. Sales of our foreign operations were $31,001,000, $27,075,000 and $25,313,000 in fiscal years 2017, 2016 and 2015, respectively. At September 30, 2017, the total assets of our foreign operations were approximately $39 million or 4.5% of total assets. At September 24, 2016, the total assets of our foreign operations were approximately $29 million or 3.7% of total assets.
Risks associated with our information technology systems
The efficient operation of our business depends on our information technology systems. We rely on our information technology systems to effectively manage our business data, communications, supply chain, manufacturing, order entry and fulfillment, and other business processes. The failure of our information technology systems (including those provided to us by third parties) to perform as we anticipate could disrupt our business and could result in billing, collecting, and ordering errors, processing inefficiencies, and the loss of sales and customers, causing our business and results of operations to suffer.
In addition, our information technology systems may be vulnerable to damage or interruption from circumstances beyond our control, including fire, natural disasters, systems failures, security breaches or intrusions (including theft of customer, consumer or other confidential data), and viruses. If we are unable to prevent physical and electronic break-ins, cyber-attacks and other information security breaches, we may suffer financial and reputational damage, be subject to litigation or incur remediation costs or penalties because of the unauthorized disclosure of confidential information belonging to us or to our partners, customers, suppliers or employees.
Seasonality and Quarterly Fluctuations
Our sales are affected by the seasonal demand for our products. Demand is greater during the summer months primarily as a result of the warm weather demand for our ICEE and frozen juice treats and desserts products. Because of seasonal fluctuations, there can be no assurance that the results of any particular quarter will be indicative of results for the full year or for future years.
Item 1B. Unresolved Staff Comments
We have no unresolved SEC staff comments to report.
Item 2
.
Properties
The Company’s primary east coast manufacturing facility is located in Pennsauken, New Jersey in a 70,000 square foot building on a two-acre lot. Soft pretzels are manufactured at this Company-owned facility which also serves as the Company’s corporate headquarters. This facility operates at approximately 65% of capacity. The Company owns a 128,000 square foot building adjacent to this manufacturing facility which contains a large freezer for warehousing and distribution purposes. The warehouse has a utilization rate of 80-90% depending on product demand. The Company leases, through January 2022, 16,000 square feet of office and warehouse space located next to the Pennsauken, New Jersey plant and owns a 43,000 square foot office and warehouse building in the same complex.
The Company owns a 150,000 square foot building on eight acres in Bellmawr, New Jersey. The facility is used by the Company to manufacture some of its products including funnel cake, pretzels and churros. The facility operates at about 75% of capacity.
The Company’s primary west coast manufacturing facility is located in Vernon (Los Angeles), California. It consists of a 137,000 square foot facility in which soft pretzels, churros and various lines of baked goods are produced and warehoused. Included in the 137,000 square foot facility is a 30,000 square foot freezer used for warehousing and distribution purposes. The facility is leased through November 2030. The Company leases an additional 80,000 square feet of office and warehouse space, adjacent to its manufacturing facility, through November 2030. The manufacturing facility operates at approximately 50% of capacity.
The Company leases a 22,000 square foot soft pretzel manufacturing facility located in Brooklyn, New York. The lease runs through August 2023. The facility operates at about 60% of capacity.
The Company leases through June 2030 a 45,000 square foot churros manufacturing facility located in Colton, California which operates at approximately 50% of capacity.
The Company leases an 85,000 square foot bakery manufacturing facility located in Atlanta, Georgia. The lease runs through December 2020. The facility operates at about 55% of capacity.
The Company leases a 129,000 square foot bakery manufacturing facility located in Rock Island, Illinois. The lease runs through December 2034. The facility operates at about 80% of capacity.
The Company owns a 46,000 square foot frozen juice treat and dessert manufacturing facility and a 42,000 square foot dry storage warehouse located on six acres in Scranton, Pennsylvania. The manufacturing facility operates at approximately 70% of capacity.
The Company leases a 29,600 square foot soft pretzel manufacturing facility located in Hatfield, Pennsylvania.
The lease runs through June
2032. The facility operates at approximately 50% of capacity.
The Company leases a 48,000 square foot soft pretzel manufacturing facility located in Carrollton, Texas. The lease runs through April 2019. The facility operates at approximately 85% capacity. The Company leases an additional property containing a 6,500 square foot storage freezer across the street from the manufacturing facility, which lease expires May 2021.
The Company leases a 177,500 square foot soft pretzel manufacturing facility located in Alsip, Illinois. The lease runs through March 2030. The facility operates at approximately 30% of capacity.
The Company’s fresh bakery products manufacturing facility and offices are located in Bridgeport, New Jersey in three buildings totaling 133,000 square feet. The buildings are leased through December 2025. The manufacturing facility operates at approximately 65% of capacity.
The Company owns a 165,000 square foot fig and fruit bar manufacturing facility located on 9-1/2 acres in Moscow Mills (St. Louis), Missouri. The facility operates at about 65% of capacity.
The Company leases a building in Pensacola, Florida for the manufacturing, packing and warehousing of dumplings. The building is approximately 14,000 square feet and the lease runs through December 2018. The manufacturing facility operates at approximately 70% of capacity.
The Company owns an 84,000 square foot handheld products manufacturing facility in Holly Ridge, North Carolina which operates at about 60% of capacity.
The Company leases a 70,000 square foot handheld products manufacturing facility in Weston, Oregon which operates at about 40% of capacity. The facility is leased through May 13, 2021.
The Company leases a 39,000 square foot frozen juice treat and dessert manufacturing facility in Tampa, Florida which operates at about 40% of capacity. The facility is leased through September 2023.
The Company also leases approximately 160 warehouse and distribution facilities in 44 states, Mexico and Canada.
Item 3.
Legal Proceedings
The Company has no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Company or any of its subsidiaries is a party or of which any of their property is subject.
Item 4.
Mine Safety Disclosures
Not Applicable
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A
– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
J & J Snack Foods Corp. and Subsidiaries (the Company) manufactures, markets and distributes a variety of nutritional snack foods and beverages to the food service and retail supermarket industries. A summary of the significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows. Our 2017 fiscal year comprises 53 weeks. All references to 2017 fiscal year refer to that 53 week period. Fiscal years 2016 and 2015 comprised 52 weeks.
1. Principles of Consolidation
The consolidated financial statements were prepared in accordance with U.S. GAAP. These financial statements include the accounts of J & J Snack Foods Corp. and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated in the consolidated financial statements.
2. Revenue Recognition
We recognize revenue from our products when the products are shipped to our customers. Repair and maintenance equipment service revenue is recorded when it is performed provided the customer terms are that the customer is to be charged on a time and material basis or on a straight-line basis over the term of the contract when the customer has signed a service contract. Revenue is recognized only where persuasive evidence of an arrangement exists, our price is fixed or estimable and collectability is reasonably assured. We record offsets to revenue for allowances, end-user pricing adjustments, trade spending, coupon redemption costs and returned product. Customers generally do not have the right to return product unless it is damaged or defective. Our recorded liability for allowances, end-user pricing adjustments and trade spending was approximately $13.0 million at September 30, 2017 and $14.3 million at September 24, 2016.
All amounts billed to customers related to shipping and handling are classified as revenues. Our product costs include amounts for shipping and handling, therefore, we charge our customers 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. The cost of shipping products to the customer classified as Distribution expenses was $81,824,000, $73,114,000 and $74,158,000 for the fiscal years ended 2017, 2016 and 2015, respectively.
During the years ended September 30, 2017, September 24, 2016 and September 26, 2015, we sold $23,489,000, $24,664,000 and $25,536,000, respectively, of repair and maintenance service contracts in our frozen beverage business. At September 30, 2017 and September 24, 2016, deferred income on repair and maintenance service contracts was $1,956,000 and $1,671,000, respectively, of which $210,000 and $145,000 is included in other long-term liabilities as of September 30, 2017 and September 24, 2016, respectively and the balance is reflected as short-term and included in accrued liabilities on the consolidated balance sheet. Repair and maintenance service contract income of $23,204,000, $24,571,000 and $25,534,000 was recognized for the fiscal years ended 2017, 2016 and 2015, respectively.
3. Foreign Currency
Assets and liabilities in foreign currencies are translated into U.S. dollars at the rate of exchange prevailing at the balance sheet date. Revenues and expenses are translated at the average rate of exchange for the period. The cumulative translation adjustment is recorded as a separate component of stockholders’ equity and changes to such are included in comprehensive income.
4. Use of Estimates
In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
5. Cash Equivalents
Cash equivalents are short-term, highly liquid investments with original maturities of three months or less.
6.
Concentration
s and related risks
We maintain cash balances at financial institutions located in various states. We have cash balances at two banks totaling approximately $45 million that is in excess of FDIC insurance of $250,000 per bank.
Financial instruments that could potentially subject us to concentrations of credit risk are trade accounts receivable; however, such risks are limited due to the large number of customers comprising our customer base and their dispersion across geographic regions. We usually have approximately 15 customers with accounts receivable balances of between $1 million and $10 million.
We have several large customers that account for a significant portion of our sales. Our top ten customers accounted for 42%, 42% and 43% of our sales during fiscal years 2017, 2016 and 2015, respectively, with our largest customer accounting for 9% of our sales in 2017, 8% of our sales in 2016 and 8% of our sales in 2015. Three of the ten customers are food distributors who sell our product to many end users.
About 28% of our employees are covered by collective bargaining agreements.
None of our vendors supplied more than 10% of our ingredients and packaging in 2017, 2016 or 2015.
Virtually all of our accounts receivable are due from trade customers. Credit is extended based on evaluation of our customers’ financial condition and collateral is not required. Accounts receivable payment terms vary and are stated in the financial statements at amounts due from customers net of an allowance for doubtful accounts. At September 30, 2017 and September 24, 2016, our accounts receivables were $124,553,000 and $98,325,000 net of an allowance for doubtful accounts of $359,000 and $571,000. Accounts receivable outstanding longer than the payment terms are considered past due. We determine our allowance by considering a number of factors, including the length of time trade accounts receivable are past due, our previous loss history, customers’ current ability to pay their obligations to us, and the condition of the general economy and the industry as a whole. We write off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts.
7. Inventories
Inventories are valued at the lower of cost (determined by the first-in, first-out method) or market.
We recognize abnormal amounts of idle facilities, freight, handling costs, and spoilage as charges of the current period. Additionally, we allocate fixed production overhead to inventories based on the normal capacity of our production facilities. We calculate normal capacity as the production expected to be achieved over a number of periods or seasons under normal circumstances, taking into account the loss of capacity resulting from planned maintenance. This requires us to use judgment to determine when production is outside the range of expected variation in production (either abnormally low or abnormally high). In periods of abnormally low production (for example, periods in which there is significantly lower demand, labor and material shortages exist, or there is unplanned equipment downtime) the amount of fixed overhead allocated to each unit of production is not increased. However, in periods of abnormally high production the amount of fixed overhead allocated to each unit of production is decreased to assure inventories are not measured above cost.
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
8. Investment Securities
We classify our investment securities in one of three categories: held to maturity, trading, or available for sale. Our investment portfolio at September 30, 2017, consists of investments classified as held to maturity and available for sale. The securities that we have the positive intent and ability to hold to maturity are classified as held to maturity and are stated at amortized cost. Investments classified as available for sale are reported at fair market value with unrealized gains and losses related to the changes in fair value of the securities recognized in accumulated other comprehensive income (loss).
The mutual funds and preferred stock in our available for sale portfolio 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. See Note C for further information on our holdings of investment securities.
9.
Depreciation and Amortization
Depreciation of equipment and buildings is provided for by the straight-line method over the assets’ estimated useful lives. We review our equipment and buildings to ensure that they provide economic benefit and are not impaired.
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 are being amortized by the straight-line method over periods ranging from 3 to 20 years and amortization expense is reflected throughout operating expenses.
Long-lived assets, including fixed assets and amortizing intangibles, are reviewed for impairment as events or changes in circumstances occur indicating that the carrying amount of
the asset may not be recoverable. Indefinite lived intangibles are reviewed annually for impairment. Cash flow and sales analyses are used to assess impairment. The estimates of future cash flows and sales involve considerable management judgment and are based upon assumptions about expected future operating performance. Assumptions used in these forecasts are consistent with internal planning. The actual cash flows and sales could differ from management’s estimates due to changes in business conditions, operating performance, economic conditions, competition and consumer preferences.
10. Fair Value of Financial Instruments
The carrying value of our short-term financial instruments, such as accounts receivables and accounts payable, approximate their fair values, based on the short-term maturities of these instruments.
11. Income Taxes
We account for our income taxes under the liability method. Under the liability method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates that will be in effect when these differences reverse. Deferred tax expense is the result of changes in deferred tax assets and liabilities.
Additionally, we recognize a liability for income taxes and associated penalties and interest for tax positions taken or expected to be taken in a tax return which are more likely than not to be overturned by taxing authorities (“uncertain tax positions”).
We have not recognized a tax benefit in our financial statements for these uncertain tax positions.
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
As of September 30, 2017 and September 24, 2016, the total amount of gross unrecognized tax benefits is $374,000 and $354,000; respectively, all of which would impact our effective tax rate over time, if recognized. We recognize interest and penalties related to income tax matters as a part of the provision for income taxes. We had $239,000 of accrued interest and penalties as of September 30, 2017 and $219,000 as of September 24, 2016. We did not recognize any penalties and interest resulting from tax settlements in the years ended September 30, 2017 and September 24, 2016. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
(in thousands)
|
|
|
|
|
|
|
Balance at September 24, 2016
|
|
$
|
354
|
|
Additions based on tax positions
related to the current year
|
|
|
20
|
|
Reductions for tax positions of prior years
|
|
|
-
|
|
Settlements
|
|
|
-
|
|
Balance at September 30, 2017
|
|
$
|
374
|
|
In addition to our federal tax return and tax returns for Mexico and Canada, we file tax returns in all states that have a corporate income tax. Virtually all the returns noted above are open for examination for three to four years.
12. Earnings Per Common Share
Basic earnings per common share (EPS) excludes dilution and is computed by dividing income available to common shareholders by the weighted average common shares outstanding during the period. Diluted EPS takes into consideration the potential dilution that could occur if securities (stock options) or other contracts to issue common stock were exercised and converted into common stock.
Our calculation of EPS is as follows:
|
|
Fiscal Year Ended September 30, 2017
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
|
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Basic Share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income available
to common stockholders
|
|
$
|
79,174
|
|
|
|
18,707
|
|
|
$
|
4.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Dilutive Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
-
|
|
|
|
109
|
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Diluted Share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income available to
common stockholders plus
assumed conversions
|
|
$
|
79,174
|
|
|
|
18,816
|
|
|
$
|
4.21
|
|
157,994 anti-dilutive shares have been excluded in the computation of
2017 diluted EPS.
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|
|
Fiscal Year Ended September 24, 2016
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
|
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Basic Share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income available
to common stockholders
|
|
$
|
75,975
|
|
|
|
18,649
|
|
|
$
|
4.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Dilutive Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
-
|
|
|
|
120
|
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Diluted Share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income available to
common stockholders plus
assumed conversions
|
|
$
|
75,975
|
|
|
|
18,769
|
|
|
$
|
4.05
|
|
180,170 anti-dilutive shares have been excluded in the computation of 2016 diluted EPS.
|
|
Fiscal Year Ended September 26, 2015
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
|
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Basic Share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income available
to common stockholders
|
|
$
|
70,183
|
|
|
|
18,685
|
|
|
$
|
3.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Dilutive Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
-
|
|
|
|
134
|
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Diluted Share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income available to
common stockholders plus
assumed conversions
|
|
$
|
70,183
|
|
|
|
18,819
|
|
|
$
|
3.73
|
|
1,500 anti-dilutive shares have been excluded in the computation of 2015 diluted EPS.
13.
Accounting for Stock-Based Compensation
At
September 30, 2017, the Company has three stock-based employee compensation plans. Share-based compensation was recognized as follows:
|
|
Fiscal year ended
|
|
|
|
September 30,
|
|
|
September 24,
|
|
|
September 26,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
$
|
(436
|
)
|
|
$
|
86
|
|
|
$
|
1,098
|
|
Stock purchase plan
|
|
|
363
|
|
|
|
305
|
|
|
|
328
|
|
Stock issued to an outside director
|
|
|
56
|
|
|
|
-
|
|
|
|
-
|
|
Restricted stock issued to employees
|
|
|
4
|
|
|
|
4
|
|
|
|
6
|
|
Total share-based compensation
|
|
$
|
(13
|
)
|
|
$
|
395
|
|
|
$
|
1,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The above compensation is net of tax benefits
|
|
$
|
3,061
|
|
|
$
|
1,980
|
|
|
$
|
734
|
|
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income tax benefit related to share-based compensation for the years ended September 30, 2017 and September 24, 2016 includes $1,497,000 and $885,000, respectively, as a result of our early adoption as of our fiscal March 2016 quarter of Accounting Standards Update No 2016-09, Improvements to Employee Share-Based Payment Accounting. Under this new standard, income tax benefit is recognized rather than additional paid in capital upon the exercise of stock options.
At September 30, 2017, the Company has unrecognized compensation expense of approximately $4.0 million to be recognized over the next three fiscal years.
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 2017, 2016 and 2015: expected volatility of 16.6% for fiscal year 2017, expected volatility of 16.7% for fiscal year 2016 and 18.4% for fiscal year 2015: weighted average risk-free interest rates of 2.0%, 1.3% and 1.7%;
dividend rate of 1.3%, 1.4% and 1.4% and expected lives ranging
between 5 and 10 years for all years. An expected forfeiture rate of 13% was used for 2017, 19% was used for 2016 and 19% was used for 2015.
Expected volatility is based on the historical volatility of the price of our common shares over the past 49 to 51 months for 5 year options and 10 years for 10 year options. We use historical information to estimate expected life and forfeitures within the valuation model. The expected term of awards represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Compensation cost is recognized using a straight-line method over the vesting or service period and is net of estimated forfeitures.
14.
Advertising Costs
Advertising costs are expensed as incurred. Total advertising expense was $5,677,000, $4,870,000 and $4,290,000 for the fiscal years 2017, 2016 and 2015, respectively.
15. Commodity Price Risk Management
Our most significant raw material requirements include flour, packaging, shortening, corn syrup, sugar, juice, cheese, chocolate, and a variety of nuts. We attempt to minimize the effect of future price fluctuations related to the purchase of raw materials primarily through forward purchasing to cover future manufacturing requirements, generally for periods from 1 to 12 months. As of September 30, 2017, we have approximately $75 million of such commitments. Futures contracts are not used in combination with forward purchasing of these raw materials. Our procurement practices are intended to reduce the risk of future price increases, but also may potentially limit the ability to benefit from possible price decreases. Our policy is to recognize estimated losses on purchase commitments when they occur. At each of the last three fiscal year ends, we did not have any material losses on our purchase commitments.
16.
Research and Development Costs
Research and development costs are expensed as incurred. Total research and development expense was $674,000, $525,000 and $506,000 for the fiscal years 2017, 2016 and 2015, respectively.
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
17.
Recent Accounting Pronouncements
In May 2014 and in subsequent updates, the FASB issued guidance on revenue recognition which requires that we recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration which we expect to be entitled in exchange for those goods or services. We have performed a review of the requirements of the new revenue standard and are in the process of reviewing customer contracts and applying the five-step model of this new guidance to each contract category we have identified and will compare the results to our current accounting practices. We plan to adopt this guidance on the first day of our fiscal 2019 year. We will likely apply the modified retrospective transition method, which would result in an adjustment to retained earnings for the cumulative effect, if any, of applying the standard to contracts in process as of the adoption date. Under this method, we would not restate the prior financial statements presented. Therefore, this guidance would require additional disclosures of the amount by which each financial statement line item is affected in the fiscal year 2019 reporting period.
In January 2016,
the FASB issued guidance which requires an entity to measure equity investments at fair value with changes in fair value recognized in net income , to use the price that would be received by a seller when measuring the fair value of financial instruments for disclosure purposes, and which eliminates the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. Under present guidance, changes in fair value of equity investments available for sale are recognized in Stockholders’ Equity. This guidance is effective for our fiscal year ended September 2019. Early adoption is not permitted. We anticipate that the adoption of this guidance on our consolidated financial statements will not be material.
In February 2016, the FASB issued guidance on lease accounting which requires that an entity recognize most leases on its balance sheet.
The guidance retains a dual lease accounting model for purposes of income statement recognition, continuing the distinction between what are currently known as “capital” and “operating” leases for lessees. This guidance is effective for our fiscal year ended September 2020. While we continue to evaluate the effect of adopting this guidance on our consolidated financial statements and related disclosures, we expect our operating leases, as disclosed in Note J — Commitments and Contingencies, will be subject to the new standard. We will recognize right-of-use assets and operating lease liabilities on our consolidated balance sheets upon adoption, which will increase our total assets and liabilities.
In March 2016, the FASB issued guidance on share based compensation which requires that an entity recognize all excess tax benefits and tax
deficiencies as income tax expense or benefit in the income statement as discrete items in the reporting period in which they occur. Under current guidance, excess tax benefits are
recognized in additional paid-in capital and tax deficiencies are recognized either as an offset to accumulated excess tax benefits, or in the income statement. This guidance is effective for our fiscal year ended September 2018. Early adoption is permitted. See Note A.13 to these financial statements for a discussion of the impact the adoption of this guidance in our March 2016 quarter had on our consolidated financial statements.
In January 2017, the FASB issued guidance to clarify the definition of a business. The updated standard provides guidance to assist entities with evaluating when a set of transferred assets and activities is a business. Under the new guidance, an entity first determines whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the set is not a business. If it is not met, the entity then evaluates whether the set meets the requirements that a business include,
at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. The updated guidance is effective for our fiscal year ending September 2019 and interim periods within that year. Early adoption is permitted, including the interim and annual periods in which the financial statements have not been issued or made available for issuances. We have adopted this new guidance in the March 2017 quarter and the adoption had no impact on our consolidated financial statements.
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
In January 2017, the FASB issued guidance
to simplify the test for goodwill impairment. This updated standard simplifies the subsequent measurement of goodwill and eliminates the two-step goodwill impairment test. Under the new guidance, an annual or interim goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount, and an impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. The guidance also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and two-step goodwill impairment test. The updated guidance is effective for our fiscal year ending September 2021 and interim periods within that year. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this new guidance in our September 2017 quarter did not have a material impact on our consolidated financial statements.
18.
Reclassifications
Certain prior year financial statement amounts have been reclassified to be consistent with the presentation for the current year.
NOTE B
– ACQUISITIONS
On December 30, 2016, we acquired Hill & Valley Inc., a premium bakery located in Rock Island, IL for approximately $31 million. Hill & Valley, with sales of over $45 million annually, is a manufacturer of a variety of pre-baked cakes, cookies, pies, muffins and other desserts selling to retail in-store bakeries. Hill & Valley is a brand of Sugar Free and No Sugar Added pre-baked in-store bakery items. Additionally, Hill & Valley sustains strategic private labeling partnerships with retailers nationwide. Sales and operating income of Hill & Valley included in our 2017 fiscal year operating results were $35.8 million and $653,000, respectively.
On May 22, 2017, we acquired an ICEE distributor doing business in Georgia and Tennessee for approximately $11 million.
Sales and operating income of the acquired business included in our 2017 fiscal year operating results were $1,689,000 and $395,000, respectively.
On
August 16, 2017, we acquired Labriola Baking Company, a bakery of breads and artisan soft pretzels located in Alsip, IL for approximately $6 million. Labriola Bakery, with sales of approximately $17 million annually, is a manufacturer of pre-baked breads, rolls and soft pretzels for retail in-store bakery and foodservice outlets nationwide. Sales of Labriola included in our 2017 fiscal year operating results were $2,061,000 with marginal operating income.
Acquisition costs of $
1,070,000 for the acquisitions are included in other general expense in the consolidated statements of earnings for the year ended September 30, 2017.
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE B
– ACQUISITIONS (continued)
The preliminary purchase price allocations, subject to final valuation, for the three acquisitions are as follows:
|
|
|
|
|
|
ICEE
|
|
|
Labriola
|
|
|
|
Hill & Valley
|
|
|
Distributor
|
|
|
Baking Co
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Receivable, net
|
|
$
|
4,054
|
|
|
$
|
340
|
|
|
$
|
1,165
|
|
Inventories
|
|
|
6,088
|
|
|
|
217
|
|
|
|
779
|
|
Prepaid expenses and other
|
|
|
122
|
|
|
|
25
|
|
|
|
102
|
|
Property, plant & equipment, net
|
|
|
4,398
|
|
|
|
2,277
|
|
|
|
3,598
|
|
Trade Names
|
|
|
2,090
|
|
|
|
-
|
|
|
|
388
|
|
Customer Relationships
|
|
|
13,000
|
|
|
|
57
|
|
|
|
-
|
|
Distibution rights
|
|
|
-
|
|
|
|
6,900
|
|
|
|
-
|
|
Goodwill
|
|
|
14,175
|
|
|
|
1,236
|
|
|
|
658
|
|
Covenant not to compete
|
|
|
670
|
|
|
|
-
|
|
|
|
188
|
|
Accounts Payable
|
|
|
(2,260
|
)
|
|
|
(79
|
)
|
|
|
(1,110
|
)
|
Accrued Liabilities
|
|
|
(2,162
|
)
|
|
|
(26
|
)
|
|
|
(128
|
)
|
Accrued compensation expense
|
|
|
(650
|
)
|
|
|
-
|
|
|
|
-
|
|
Other long-term liabilities
|
|
|
(1,782
|
)
|
|
|
-
|
|
|
|
-
|
|
Deferred income taxes
|
|
|
(6,632
|
)
|
|
|
-
|
|
|
|
-
|
|
Purchase Price
|
|
$
|
31,111
|
|
|
$
|
10,947
|
|
|
$
|
5,640
|
|
The goodwill and intangible assets acquired in the business combinations are recorded at estimated fair value. To measure fair value for such assets, we use techniques including discounted expected future cash flows (Level 3 input). The goodwill recognized is attributable to the assembled workforce of each acquired business and certain other strategic intangible assets that do not meet the requirements for recognition separate and apart from goodwill.
Our unaudited proforma results, giving effect to these three acquisitions and assuming an acquisition date of September 28, 2014, would have been:
|
|
Fiscal Year Ended
|
|
|
|
(in thousands)
|
|
|
|
September 30,
|
|
|
September 24,
|
|
|
September 26,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(53 weeks)
|
|
|
(52 weeks)
|
|
|
(52 weeks)
|
|
|
|
Unaudited
|
|
|
Unaudited
|
|
|
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
$
|
1,116,599
|
|
|
$
|
1,062,500
|
|
|
$
|
1,043,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings
|
|
$
|
79,082
|
|
|
$
|
76,180
|
|
|
$
|
68,938
|
|
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE C
– INVESTMENT SECURITIES
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 inputs 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.
|
Our 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 deposits 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 deposits are classified within Level 2 of the fair value hierarchy.
The amortized cost, unrealized gains and losses, and fair market values of our marketable securities held to maturity at September 30, 2017 are summarized as follows:
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Fair
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Market
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(in thousands)
|
|
|
|
|
|
Corporate Bonds
|
|
$
|
114,101
|
|
|
$
|
424
|
|
|
$
|
155
|
|
|
$
|
114,370
|
|
Certificates of Deposit
|
|
|
5,920
|
|
|
|
18
|
|
|
|
1
|
|
|
|
5,937
|
|
Total marketable securities
held to maturity
|
|
$
|
120,021
|
|
|
$
|
442
|
|
|
$
|
156
|
|
|
$
|
120,307
|
|
The amortized cost, unrealized gains and losses, and fair market values of our
marketable securities available for sale at September 30, 2017 are summarized as follows:
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Fair
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Market
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual Funds
|
|
$
|
13,003
|
|
|
$
|
77
|
|
|
$
|
240
|
|
|
$
|
12,840
|
|
Preferred Stock
|
|
|
16,791
|
|
|
|
711
|
|
|
|
82
|
|
|
|
17,420
|
|
Total marketable securities
available for sale
|
|
$
|
29,794
|
|
|
$
|
788
|
|
|
$
|
322
|
|
|
$
|
30,260
|
|
The mutual funds seek current income with an emphasis on maintaining low volatility and overall moderate duration
. The mutual funds presently generate income of 4.5 % per year. We have invested $17 million in Fixed-to-Floating Perpetual Preferred Stock which generates fixed income to call dates in 2018, 2019 and 2025 and then income is based on a spread above LIBOR if the securities are not called. The annual yield from these investments is presently 5.5%, of which 70% is not subject to income tax. The mutual funds and the Fixed-to-Floating Perpetual Preferred Stock investment securities 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. W
e have invested $114 million in corporate bonds which generate fixed income to maturity dates in 2017 through 2021, with $78 million maturing prior to the end of our fiscal year 2019. The bonds presently generate income of about 2.1% per year. Our expectation is that we will hold the corporate bonds to their maturity dates and redeem them at our amortized cost.
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE C
– INVESTMENT SECURITIES (continued)
The amortized cost, unrealized gains and losses, and fair market values of our
marketable securities held to maturity at September 24, 2016 are summarized as follows:
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Fair
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Market
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(in thousands)
|
|
|
|
|
|
Corporate Bonds
|
|
$
|
103,311
|
|
|
$
|
734
|
|
|
$
|
138
|
|
|
$
|
103,907
|
|
Certificates of Deposit
|
|
|
960
|
|
|
|
11
|
|
|
|
-
|
|
|
|
971
|
|
Total marketable securities
held to maturity
|
|
$
|
104,271
|
|
|
$
|
745
|
|
|
$
|
138
|
|
|
$
|
104,878
|
|
The amortized cost, unrealized gains and losses, and fair market values of our
marketable securities available for sale at September 24, 2016 are summarized as follows:
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Fair
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Market
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual Funds
|
|
$
|
13,003
|
|
|
$
|
-
|
|
|
$
|
520
|
|
|
$
|
12,483
|
|
Preferred Stock
|
|
|
16,791
|
|
|
|
273
|
|
|
|
82
|
|
|
|
16,982
|
|
Total marketable securities
available for sale
|
|
$
|
29,794
|
|
|
$
|
273
|
|
|
$
|
602
|
|
|
$
|
29,465
|
|
The amortized cost and fair value of the Company
’s held to maturity securities by contractual maturity at September 30, 2017 and September 24, 2016 are summarized as follows:
|
|
September 30, 2017
|
|
|
September 24, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
|
|
|
|
Fair
|
|
|
|
Amortized
|
|
|
Market
|
|
|
Amortized
|
|
|
Market
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
(in thousands)
|
|
Due in one year or less
|
|
$
|
59,113
|
|
|
$
|
59,194
|
|
|
$
|
13,539
|
|
|
$
|
13,552
|
|
Due after one year through
five years
|
|
|
60,908
|
|
|
|
61,113
|
|
|
|
90,732
|
|
|
|
91,326
|
|
Due after five years through
ten years
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total held to maturity
securities
|
|
$
|
120,021
|
|
|
$
|
120,307
|
|
|
$
|
104,271
|
|
|
$
|
104,878
|
|
Less current portion
|
|
|
59,113
|
|
|
|
59,194
|
|
|
|
13,539
|
|
|
|
13,552
|
|
Long term held to maturity
securities
|
|
$
|
60,908
|
|
|
$
|
61,113
|
|
|
$
|
90,732
|
|
|
$
|
91,326
|
|
Proceeds from the sale and redemption of marketable securities were $22,997,000, $13,224,000 and $110,117,000 in the years ended September 30, 2017, September 24, 2016 and September 26, 2015, respectively; with a gain of $14,000 in 2017 and losses of $661,000 and $4,319,000 recorded in 2016 and 2015, respectively. We use the specific identification method to determine the cost of securities sold.
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE D
– INVENTORIES
Inventories consist of the following:
|
|
September 30,
|
|
|
September 24,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Finished goods
|
|
$
|
45,394
|
|
|
$
|
38,285
|
|
Raw materials
|
|
|
22,682
|
|
|
|
18,223
|
|
Packaging materials
|
|
|
8,833
|
|
|
|
6,799
|
|
Equipment parts and other
|
|
|
26,359
|
|
|
|
25,377
|
|
Total Inventories
|
|
$
|
103,268
|
|
|
$
|
88,684
|
|
NOTE E – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following
:
|
|
September 30,
|
|
|
September 24,
|
|
|
Estimated
Useful Lives
|
|
|
|
2017
|
|
|
2016
|
|
|
(in years)
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
2,482
|
|
|
$
|
2,512
|
|
|
|
-
|
|
|
Buildings
|
|
|
26,741
|
|
|
|
26,741
|
|
|
15
|
-
|
39.5
|
|
Plant machinery
and equipment
|
|
|
257,172
|
|
|
|
227,614
|
|
|
5
|
-
|
20
|
|
Marketing equipment
|
|
|
278,860
|
|
|
|
278,299
|
|
|
|
-
|
7
|
|
Transportation
equipment
|
|
|
8,449
|
|
|
|
7,637
|
|
|
|
5
|
|
|
Office equipment
|
|
|
25,302
|
|
|
|
22,136
|
|
|
3
|
-
|
5
|
|
Improvements
|
|
|
38,003
|
|
|
|
34,750
|
|
|
5
|
-
|
20
|
|
Construction in
Progress
|
|
|
16,880
|
|
|
|
5,356
|
|
|
|
-
|
|
|
|
|
|
653,889
|
|
|
|
605,045
|
|
|
|
|
|
|
Less accumulated depreciation
and amortization
|
|
|
426,308
|
|
|
|
420,832
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
227,581
|
|
|
$
|
184,213
|
|
|
|
|
|
|
Depreciation expense was
$38,211,000, $34,536,000 and $32,356,000 for fiscal years 2017, 2016 and 2015, respectively
.
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE C
– INVESTMENT SECURITIES (continued)
Our three reporting units, which are also reportable segments, are Food Service, Retail Supermarket and Frozen Beverages.
The carrying amount of acquired intangible assets for the reportable segments are as follows:
|
|
September 30, 2017
|
|
|
September 24, 2016
|
|
|
|
Gross
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amortization
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOOD SERVICE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite lived intangible
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade Names
|
|
$
|
16,628
|
|
|
$
|
-
|
|
|
$
|
14,150
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non compete agreements
|
|
|
980
|
|
|
|
263
|
|
|
|
122
|
|
|
|
93
|
|
Customer relationships
|
|
|
20,510
|
|
|
|
6,476
|
|
|
|
35,491
|
|
|
|
31,895
|
|
License and rights
|
|
|
1,690
|
|
|
|
1,058
|
|
|
|
1,690
|
|
|
|
974
|
|
TOTAL FOOD SERVICE
|
|
$
|
39,808
|
|
|
$
|
7,797
|
|
|
$
|
51,453
|
|
|
$
|
32,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RETAIL SUPERMARKETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite lived intangible
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade Names
|
|
$
|
6,557
|
|
|
$
|
-
|
|
|
$
|
7,206
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
|
649
|
|
|
|
130
|
|
|
|
-
|
|
|
|
-
|
|
Customer relationships
|
|
|
7,979
|
|
|
|
2,822
|
|
|
|
7,979
|
|
|
|
2,021
|
|
TOTAL RETAIL SUPERMARKETS
|
|
$
|
15,185
|
|
|
$
|
2,952
|
|
|
$
|
15,185
|
|
|
$
|
2,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FROZEN BEVERAGES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite lived intangible
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade Names
|
|
$
|
9,315
|
|
|
$
|
-
|
|
|
$
|
9,315
|
|
|
$
|
-
|
|
Distribution rights
|
|
|
6,900
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
257
|
|
|
|
50
|
|
|
|
200
|
|
|
|
28
|
|
Licenses and rights
|
|
|
1,400
|
|
|
|
794
|
|
|
|
1,400
|
|
|
|
723
|
|
TOTAL FROZEN BEVERAGES
|
|
$
|
17,872
|
|
|
$
|
844
|
|
|
$
|
10,915
|
|
|
$
|
751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
|
|
$
|
72,865
|
|
|
$
|
11,593
|
|
|
$
|
77,553
|
|
|
$
|
35,734
|
|
The gross carrying amount of intangible assets is determined by applying a discounted cash flow model to the future sales and earnings associated with each intangible asset or is set by contract cost. The amortization period used for definite lived intangible assets is set by contract period or by the period over which the bulk of the discounted cash flow is expected to be generated. We currently believe that we will receive the benefit from the use of the trade names and distribution rights classified as indefinite lived intangible assets indefinitely and they are therefore not amortized.
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE F
– GOODWILL AND INTANGIBLE ASSETS (continued)
Licenses and rights, customer relationships and non-compete agreements are being amortized by the straight-line method over periods ranging from 3 to 20 years and amortization expense is reflected throughout operating expenses.
Amortizing intangibles are reviewed for impairment as events or changes in circumstances occur indicating that the carrying amount of
the asset may not be recoverable. Indefinite lived intangibles are reviewed annually at year end for impairment. Cash flow and sales analyses are used to assess impairment. The estimates of future cash flows and sales involve considerable management judgment and are based upon assumptions about expected future operating performance which include Level 3 inputs such as annual growth rates and discount rates. Assumptions used in these forecasts are consistent with internal planning. The actual cash flows and sales could differ from management’s estimates due to changes in business conditions, operating performance, economic conditions, competition and consumer preferences. There were no impairments of intangible assets in 2017, 2016 or 2015.
Intangible assets of $200,000 were acquired in the frozen beverages segment in fiscal year 2015. Intangible assets of $1,078,000 were acquired in fiscal year 2016 in the food service segment due to the purchase of the HEARTBAR brand. In fiscal year 2017, intangible assets of $6,957,000 were acquired in our ICEE distributor acquisition in our frozen beverage segment and intangible assets of $15,760,000 were acquired in the Hill & Valley acquisition in our food service segment and intangible assets of $576,000 were acquired in the Labriola Baking acquisition, also in our food service segment.
Aggregate amortization expense of intangible assets for the fiscal years 2017, 2016 and 2015 was $3,840,000, $5,078,000 and $5,370,000, respectively.
Estimated amortization expense for the next five fiscal years is approximately $3,500,000 in 2018, $3,400,000 in 2019, $3,000,000 in 2020, $2,400,000 in 2021 and $2,300,000 in 2022. The weighted average amortization period of the intangible assets is 10.8 years.
Goodwill
The carrying amounts of goodwill for the reportable segments are as follows:
|
|
Food
|
|
|
Retail
|
|
|
Frozen
|
|
|
|
|
|
|
|
Service
|
|
|
Supermarkets
|
|
|
Beverages
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
September 30, 2017
|
|
$
|
61,665
|
|
|
$
|
3,670
|
|
|
$
|
37,176
|
|
|
$
|
102,511
|
|
Balance at
September 24, 2016
|
|
$
|
46,832
|
|
|
$
|
3,670
|
|
|
$
|
35,940
|
|
|
$
|
86,442
|
|
The carrying value of goodwill is determined based on the excess of the purchase price of acquisitions over the estimated fair value of tangible and intangible net assets. Goodwill is not amortized but is evaluated annually at year end by management for impairment. Our impairment analysis for 2017, 2016 and 2015 was based on a combination of the income approach, which estimates the fair value of reporting units based on discounted cash flows, and the market approach, which estimates the fair value of reporting units based on comparable market prices and multiples. Under the income approach the Company used a discounted cash flow which requires Level 3 inputs such as: annual growth rates, discount rates based upon the weighted average cost of capital and terminal values based upon current stock market multiples. There were no impairment charges in 2017, 2016 and 2015.
In 2017, goodwill of $1,236,000 was acquired in the ICEE distributor acquisition in our frozen beverage segment, goodwill of $14,175,000 was acquired in the Hill & Valley acquisition in our food service segment and goodwill of $658,000 was acquired in the Labriola Baking acquisition, also in our food service segment.
No goodwill was acquired in fiscal year
s 2015 and 2016.
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE G
– LONG-TERM DEBT
In November 2016, we entered into an amended and restated loan agreement with our existing banks which provides for up to a $50,000,000 revolving credit facility repayable in November 2021, with the availability of repayments without penalty. Interest is calculated based on LIBOR plus an applicable margin. The agreement contains financial covenants and requires commitment fees in accordance with standard banking practice. As of September 30, 2017 and September 24, 2016, there were no outstanding balances under the facility. We were in compliance with the financial covenants at September 30, 2017.
NOTE H
– OBLIGATIONS UNDER CAPITAL LEASES
The following is a schedule by years of future minimum lease payments under capital leases:
|
|
(in thousands)
|
|
|
|
|
|
|
2018
|
|
$
|
340
|
|
2019
|
|
|
307
|
|
2020
|
|
|
261
|
|
2021
|
|
|
266
|
|
2022
|
|
|
70
|
|
2023 and thereafter
|
|
|
-
|
|
Total minimum capital lease payments
|
|
$
|
1,244
|
|
NOTE I
– INCOME TAXES
Income tax expense (benefit) is as follows:
|
|
Fiscal year ended
|
|
|
|
September 30,
|
|
|
September 24,
|
|
|
September 26,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$
|
27,142
|
|
|
$
|
25,126
|
|
|
$
|
33,348
|
|
Foreign
|
|
|
2,770
|
|
|
|
2,433
|
|
|
|
2,260
|
|
State
|
|
|
5,227
|
|
|
|
5,622
|
|
|
|
6,294
|
|
Total current expense
|
|
|
35,139
|
|
|
|
33,181
|
|
|
|
41,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$
|
6,857
|
|
|
$
|
6,444
|
|
|
$
|
(109
|
)
|
Foreign
|
|
|
(422
|
)
|
|
|
(145
|
)
|
|
|
(34
|
)
|
State
|
|
|
1,452
|
|
|
|
1,364
|
|
|
|
(23
|
)
|
Total deferred expense(benefit)
|
|
|
7,887
|
|
|
|
7,663
|
|
|
|
(166
|
)
|
Total expense
|
|
$
|
43,026
|
|
|
$
|
40,844
|
|
|
$
|
41,736
|
|
The change in deferred taxes for the year ended September 30, 2017 does not equal deferred tax expense in the amount of $6,632,000 as a result of purchase accounting related to the Hill & Valley acquisition
.
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE I
– INCOME TAXES (continued)
The provisions for income taxes differ from the amounts computed by applying the statutory federal income tax rate of approximately 35% to earnings before income taxes for the following reasons:
|
|
Fiscal year ended
|
|
|
|
September 30,
|
|
|
September 24,
|
|
|
September 26,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes at federal statutory rates
|
|
$
|
42,770
|
|
|
$
|
40,887
|
|
|
$
|
39,172
|
|
Increase (decrease)in taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes, net of federal income tax benefit
|
|
|
4,341
|
|
|
|
4,541
|
|
|
|
4,196
|
|
Domestic production activities deduction
|
|
|
(1,820
|
)
|
|
|
(2,100
|
)
|
|
|
(2,100
|
)
|
Increase in gross unrecognized tax benefits
|
|
|
20
|
|
|
|
20
|
|
|
|
39
|
|
(Decrease) increase in federal valuation allowance
|
|
|
(6
|
)
|
|
|
240
|
|
|
|
1,366
|
|
Share based compensation
|
|
|
(1,923
|
)
|
|
|
(1,109
|
)
|
|
|
308
|
|
Other, net
|
|
|
(356
|
)
|
|
|
(1,635
|
)
|
|
|
(1,245
|
)
|
Income tax expense
|
|
$
|
43,026
|
|
|
$
|
40,844
|
|
|
$
|
41,736
|
|
Deferred tax assets and liabilities consist of the
following:
|
|
September 30,
|
|
|
September 24,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
Vacation accrual
|
|
$
|
1,740
|
|
|
$
|
1,646
|
|
Capital loss carry forwards
|
|
|
1,668
|
|
|
|
1,674
|
|
Insurance accrual
|
|
|
3,225
|
|
|
|
3,317
|
|
Deferred income
|
|
|
927
|
|
|
|
112
|
|
Allowances
|
|
|
1,991
|
|
|
|
1,514
|
|
Inventory capitalization
|
|
|
1,235
|
|
|
|
954
|
|
Share-based compensation
|
|
|
1,607
|
|
|
|
1,253
|
|
Net Operating Loss
|
|
|
1,559
|
|
|
|
1,691
|
|
Total deferred tax assets
|
|
|
13,952
|
|
|
|
12,161
|
|
Valuation allowance
|
|
|
(1,668
|
)
|
|
|
(1,674
|
)
|
Total deferred tax assets, net
|
|
|
12,284
|
|
|
|
10,487
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Amortization of goodwill
and other intangible
assets
|
|
|
35,043
|
|
|
|
27,358
|
|
Depreciation of property
and equipment
|
|
|
39,946
|
|
|
|
31,315
|
|
Total deferred tax liabilities
|
|
|
74,989
|
|
|
|
58,673
|
|
Total deferred tax liabilities, net
|
|
$
|
62,705
|
|
|
$
|
48,186
|
|
As of September 30, 2017, we have federal and state capital loss carry forwards of approximately $4.6 million from the sale of marketable securities in fiscal years 2015 and 2016. These carry forwards will expire in 2020, 2021 and 2022. As we have no foreseeable capital gains that would allow us to use this asset, we have recorded a valuation allowance for the full amount of this deferred tax asset.
As of September 30, 2017, we have a federal net operating loss carry forward of approximately $5 million from the PHILLY SWIRL acquisition. These carry forwards are subject to an annual limitation under Code Section 382 of approximately $378,000 and will expire in 2033. We have determined there are no limitations to the total use of this tax asset and accordingly, have not recorded a valuation allowance for this deferred tax asset.
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE I
– INCOME TAXES (continued)
We have undistributed earnings of our Mexican and Canadian subsidiaries that are considered to be indefinitely reinvested and accordingly no provision for US federal and state income taxes has been provided thereon.
NOTE J
- COMMITMENTS
1. Lease Commitments
The following is a summary of approximate future minimum rental commitments for non-cancelable operating leases with terms of more than one year as of September 30, 2017:
|
|
Plants and
|
|
|
|
|
|
|
|
|
|
|
|
Offices
|
|
|
Equipment
|
|
|
Total
|
|
|
|
|
(in thousands)
|
|
2018
|
|
$
|
8,613
|
|
|
$
|
6,828
|
|
|
$
|
15,441
|
|
2019
|
|
|
7,919
|
|
|
|
5,599
|
|
|
|
13,518
|
|
2020
|
|
|
7,040
|
|
|
|
3,705
|
|
|
|
10,745
|
|
2021
|
|
|
6,197
|
|
|
|
2,275
|
|
|
|
8,472
|
|
2022
|
|
|
5,788
|
|
|
|
512
|
|
|
|
6,300
|
|
2023 and thereafter
|
|
|
27,976
|
|
|
|
62
|
|
|
|
28,038
|
|
Total minimal rental commitments
|
|
$
|
63,533
|
|
|
$
|
18,981
|
|
|
$
|
82,514
|
|
Total rent expense was $20,354,000, $17,481,000 and $16,448,000 for fiscal years 2017, 2016 and 2015, respectively.
2. Other Commitments
We are a party to litigation which has arisen in the normal course of business which management currently believes will not have a material adverse effect on our financial condition or results of operations.
We self-insure, up to loss limits, certain insurable risks such as worker’s compensation and automobile liability claims. Accruals for claims under our self-insurance program are recorded on a claims incurred basis. Our total recorded liability for all years’ claims incurred but not yet paid was $8,100,000 and $8,200,000 at September 30, 2017 and September 24, 2016, respectively. In connection with certain self-insurance agreements, we customarily enter into letters of credit arrangements with our insurers. At September 30, 2017 and September 24, 2016, we had outstanding letters of credit totaling $8,675,000 and $8,675,000, respectively.
We have a self-insured medical plan which covers approximately 1,600 of our employees. We record a liability for incurred but not yet reported or paid claims based on our historical experience of claims payments and a calculated lag time period. Our recorded liability at September 30, 2017 and September 24, 2016 was $2,382,000 and $1,719,000, respectively.
NOTE K
- CAPITAL STOCK
In our fiscal year ended September 30, 2017, we purchased and retired 142,665 shares of our common stock at a cost of $18,228,763. In our second quarter, we purchased and retired 12,926 shares at a cost of $1,682,342. In our third quarter, we purchased and retired 13,004 shares at a cost of $1,691,357. In our fourth quarter, we purchased and retired 116,735 shares at a cost of $14,855,064.
In our fiscal year ended
September 24, 2016, we purchased and retired 141,700 shares of our common stock at a cost of $15,265,019.
In our fiscal year ended
September 26, 2015, we purchased and retired 72,698 shares of our common stock at a cost of $8,011,118.
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE L
– STOCK OPTIONS
We have, subject to shareholder approval in February 2018, a Stock Option Plan (the “Plan”). Pursuant to the Plan, stock options may be granted to officers and our key employees which qualify as incentive stock options as well as stock options which are nonqualified. The exercise price of incentive stock options is at least the fair market value of the common stock on the date of grant. The exercise price for nonqualified options is determined by a committee of the Board of Directors. The options are generally exercisable after three years and expire no later than ten years from date of grant. There were 800,000 shares reserved under the Plan under which no options have yet been issued. There are options that were issued under option plans that have since expired that are still outstanding.
We have an Employee Stock Purchase Plan (“ESPP”) whereby employees purchase stock by making contributions through payroll deductions for six month periods. The purchase price of the stock is 85% of the lower of the market price of the stock at the beginning of the six-month period or the end of the six-month period. In fiscal years 2017, 2016 and 2015 employees purchased 13,271, 13,747 and 13,648 shares at average purchase prices of $105.85, $96.00 and $86.01, respectively. ESPP expense of $363,000, $305,000 and $328,000 was recognized for fiscal years 2017, 2016 and 2015, respectively.
A summary of the status of our stock option plans as of fiscal years 2017, 2016 and 2015 and the changes during the years ended on those dates is represented below:
|
|
Incentive Stock Options
|
|
|
Nonqualified Stock Options
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Weighted-
|
|
|
|
Stock
|
|
|
Average
|
|
|
Stock
|
|
|
Average
|
|
|
|
Options
|
|
|
Exercise
|
|
|
Options
|
|
|
Exercise
|
|
|
|
Outstanding
|
|
|
Price
|
|
|
Outstanding
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 28, 2014
|
|
|
295,645
|
|
|
$
|
60.83
|
|
|
|
249,379
|
|
|
$
|
53.38
|
|
Granted
|
|
|
114,488
|
|
|
|
100.94
|
|
|
|
55,152
|
|
|
|
106.96
|
|
Exercised
|
|
|
(70,792
|
)
|
|
|
47.30
|
|
|
|
(6,590
|
)
|
|
|
51.14
|
|
Canceled
|
|
|
(6,989
|
)
|
|
|
84.13
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 26, 2015
|
|
|
332,352
|
|
|
|
77.04
|
|
|
|
297,941
|
|
|
|
63.34
|
|
Granted
|
|
|
120,450
|
|
|
|
108.69
|
|
|
|
58,720
|
|
|
|
112.35
|
|
Exercised
|
|
|
(86,223
|
)
|
|
|
53.67
|
|
|
|
(44,777
|
)
|
|
|
42.53
|
|
Canceled
|
|
|
(10,792
|
)
|
|
|
97.07
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 24, 2016
|
|
|
355,787
|
|
|
|
92.81
|
|
|
|
311,884
|
|
|
|
75.56
|
|
Granted
|
|
|
121,508
|
|
|
|
129.35
|
|
|
|
59,786
|
|
|
|
129.94
|
|
Exercised
|
|
|
(78,114
|
)
|
|
|
65.49
|
|
|
|
(60,156
|
)
|
|
|
41.46
|
|
Canceled
|
|
|
(6,200
|
)
|
|
|
100.93
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2017
|
|
|
392,981
|
|
|
$
|
109.41
|
|
|
|
311,514
|
|
|
$
|
92.58
|
|
Exercisable Options
September 30, 2017
|
|
|
51,719
|
|
|
$
|
81.54
|
|
|
|
137,856
|
|
|
$
|
62.21
|
|
The weighted-average fair value of incentive stock options granted during fiscal years ended September 30, 2017, September 24, 2016 and September 26, 2015 was $18.84, $13.94 and $15.27, respectively. The weighted-average fair value of non-qualified stock options granted during the fiscal years ended September 30, 2017, September 24, 2016 and September 26, 2015 was $24.82, $19.95 and $21.90, respectively. The total intrinsic value of stock options exercised was $10.1 million, $8.4 million and $4.8 million in fiscal years 2017, 2016 and 2015, respectively.
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE L
– STOCK OPTIONS (continued)
The total cash received from these option exercises was $5.8 million, $5.3 million and $3.1 million in fiscal years 2017, 2016 and 2015, respectively; and the actual tax benefit realized from the tax deductions from these option exercises was $3.0 million, $1.6 million and $874,000 in fiscal years 2017, 2016 and 2015, respectively.
The following table summarizes information about incentive stock options outstanding as of September 30, 2017:
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
Number
|
|
|
Weighted-
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Average
|
|
|
Weighted-
|
|
|
Exercisable
|
|
|
Weighted-
|
|
|
|
|
|
at
|
|
|
Remaining
|
|
|
Average
|
|
|
at
|
|
|
Average
|
|
Range of
|
|
September 30,
|
|
|
Contractual
|
|
|
Exercise
|
|
|
September 30,
|
|
|
Exercise
|
|
Exercise Prices
|
|
2017
|
|
|
Life
|
|
|
Price
|
|
|
2017
|
|
|
Price
|
|
$57.15
|
-
|
$81.67
|
|
|
51,219
|
|
|
|
1.1
|
|
|
$
|
81.43
|
|
|
|
51,219
|
|
|
$
|
81.43
|
|
$93.17
|
-
|
$137.16
|
|
|
341,762
|
|
|
|
3.4
|
|
|
|
113.60
|
|
|
|
500
|
|
|
|
93.17
|
|
Total options
|
|
|
392,981
|
|
|
|
3.1
|
|
|
|
109.41
|
|
|
|
51,719
|
|
|
|
81.54
|
|
The following table summarizes information about nonqualified stock options outstanding as of September 30, 2017:
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
Number
|
|
|
Weighted-
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Average
|
|
|
Weighted-
|
|
|
Exercisable
|
|
|
Weighted-
|
|
|
|
|
|
at
|
|
|
Remaining
|
|
|
Average
|
|
|
at
|
|
|
Average
|
|
Range of
|
|
September 30,
|
|
|
Contractual
|
|
|
Exercise
|
|
|
September 30,
|
|
|
Exercise
|
|
Exercise Prices
|
|
2017
|
|
|
Life
|
|
|
Price
|
|
|
2017
|
|
|
Price
|
|
$34.17
|
-
|
$47.59
|
|
|
60,000
|
|
|
|
2.7
|
|
|
$
|
41.17
|
|
|
|
60,000
|
|
|
$
|
41.17
|
|
$57.33
|
-
|
$81.67
|
|
|
57,856
|
|
|
|
4.1
|
|
|
|
72.95
|
|
|
|
57,856
|
|
|
|
72.95
|
|
$94.24
|
-
|
$131.30
|
|
|
193,658
|
|
|
|
5.5
|
|
|
|
114.38
|
|
|
|
20,000
|
|
|
|
94.24
|
|
Total options
|
|
|
311,514
|
|
|
|
4.7
|
|
|
|
92.58
|
|
|
|
137,856
|
|
|
|
62.21
|
|
NOTE M
– 401(k) PROFIT-SHARING PLAN
We maintain a 401(k) profit-sharing plan for our employees. Under this plan, we may make discretionary profit-sharing and matching 401(k) contributions. Contributions of $2,084,000, $1,936,000 and $1,836,000 were made in fiscal years 2017, 2016 and 2015, respectively.
NOTE N
– CASH FLOW INFORMATION
The following is supplemental cash flow information:
|
|
Fiscal Year Ended
|
|
|
|
September 30,
|
|
|
September 24,
|
|
|
September 26,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
(in thousands)
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
52
|
|
|
$
|
57
|
|
|
$
|
53
|
|
Income taxes
|
|
|
25,024
|
|
|
|
41,064
|
|
|
|
43,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non cash items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital leases
|
|
$
|
-
|
|
|
$
|
486
|
|
|
$
|
1,191
|
|
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE O
– SEGMENT REPORTING
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. We have applied no aggregation criteria to any of these operating segments in order to determine reportable segments. 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 segment are soft pretzels, frozen juice treats and desserts, churros, dough enrobed handheld products and baked goods. Our customers in the food service segment include snack bars and food stands in chain, department and discount stores; malls and shopping centers; casual dining restaurants; fast food 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 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. Information regarding the operations in these three reportable segments is as follows:
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE O
– SEGMENT REPORTING (continued)
|
|
Fiscal year ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 24,
|
|
|
September 26,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(53 weeks)
|
|
|
(52 weeks)
|
|
|
(52 weeks)
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Sales to External Customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
Food Service
|
|
|
|
|
|
|
|
|
|
|
|
|
Soft pretzels
|
|
$
|
180,138
|
|
|
$
|
170,155
|
|
|
$
|
168,970
|
|
Frozen juices and ices
|
|
|
49,469
|
|
|
|
51,798
|
|
|
|
54,454
|
|
Churros
|
|
|
62,809
|
|
|
|
57,318
|
|
|
|
56,602
|
|
Handhelds
|
|
|
36,913
|
|
|
|
27,427
|
|
|
|
21,817
|
|
Bakery
|
|
|
351,357
|
|
|
|
294,518
|
|
|
|
301,135
|
|
Other
|
|
|
21,108
|
|
|
|
20,313
|
|
|
|
13,657
|
|
Total Food Service
|
|
$
|
701,794
|
|
|
$
|
621,529
|
|
|
$
|
616,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail Supermarket
|
|
|
|
|
|
|
|
|
|
|
|
|
Soft pretzels
|
|
$
|
35,081
|
|
|
$
|
33,279
|
|
|
$
|
35,727
|
|
Frozen juices and ices
|
|
|
71,325
|
|
|
|
68,924
|
|
|
|
72,174
|
|
Handhelds
|
|
|
14,892
|
|
|
|
15,347
|
|
|
|
18,957
|
|
Coupon redemption
|
|
|
(4,898
|
)
|
|
|
(4,430
|
)
|
|
|
(4,725
|
)
|
Other
|
|
|
2,847
|
|
|
|
4,469
|
|
|
|
1,244
|
|
Total Retail Supermarket
|
|
$
|
119,247
|
|
|
$
|
117,589
|
|
|
$
|
123,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frozen Beverages
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverages
|
|
$
|
160,243
|
|
|
$
|
150,118
|
|
|
$
|
142,705
|
|
Repair and
maintenance service
|
|
|
74,594
|
|
|
|
71,123
|
|
|
|
65,765
|
|
Machines sales
|
|
|
27,073
|
|
|
|
31,155
|
|
|
|
26,413
|
|
Other
|
|
|
1,273
|
|
|
|
1,267
|
|
|
|
1,361
|
|
Total Frozen Beverages
|
|
$
|
263,183
|
|
|
$
|
253,663
|
|
|
$
|
236,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Sales
|
|
$
|
1,084,224
|
|
|
$
|
992,781
|
|
|
$
|
976,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Food Service
|
|
$
|
24,629
|
|
|
$
|
22,912
|
|
|
$
|
21,289
|
|
Retail Supermarket
|
|
|
949
|
|
|
|
1,031
|
|
|
|
1,132
|
|
Frozen Beverages
|
|
|
16,867
|
|
|
|
16,180
|
|
|
|
15,850
|
|
Total Depreciation and Amortization
|
|
$
|
42,445
|
|
|
$
|
40,123
|
|
|
$
|
38,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Food Service
|
|
$
|
81,208
|
|
|
$
|
76,539
|
|
|
$
|
75,286
|
|
Retail Supermarket
|
|
|
10,627
|
|
|
|
9,618
|
|
|
|
11,020
|
|
Frozen Beverages
|
|
|
26,272
|
|
|
|
26,653
|
|
|
|
24,582
|
|
Total Operating Income
|
|
$
|
118,107
|
|
|
$
|
112,810
|
|
|
$
|
110,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Food Service
|
|
$
|
44,067
|
|
|
$
|
24,759
|
|
|
$
|
28,228
|
|
Retail Supermarket
|
|
|
239
|
|
|
|
369
|
|
|
|
112
|
|
Frozen Beverages
|
|
|
27,874
|
|
|
|
23,581
|
|
|
|
20,301
|
|
Total Capital Expenditures
|
|
$
|
72,180
|
|
|
$
|
48,709
|
|
|
$
|
48,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Food Service
|
|
$
|
635,709
|
|
|
$
|
589,854
|
|
|
$
|
543,851
|
|
Retail Supermarket
|
|
|
21,129
|
|
|
|
22,090
|
|
|
|
24,209
|
|
Frozen Beverages
|
|
|
210,390
|
|
|
|
178,543
|
|
|
|
171,609
|
|
Total Assets
|
|
$
|
867,228
|
|
|
$
|
790,487
|
|
|
$
|
739,669
|
|
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE P -
ACCUMULATED OTHER COMPREHENSIVE LOSS
:
Changes to the components of accumulated other comprehensive loss are as
follows:
|
|
Fiscal Year Ended September 30, 2017
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
Foreign Currency
|
|
|
Holding (Loss) Gain
|
|
|
|
|
|
|
|
Translation
|
|
|
on Marketable
|
|
|
|
|
|
|
|
Adjustments
|
|
|
Securities
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
(13,086
|
)
|
|
$
|
(329
|
)
|
|
$
|
(13,415
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss before reclassifications
|
|
|
3,745
|
|
|
|
795
|
|
|
|
4,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified from
accumulated other
comprehensive income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
(9,341
|
)
|
|
$
|
466
|
|
|
$
|
(8,875
|
)
|
|
|
Fiscal Year Ended September 24, 2016
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
Foreign Currency
|
|
|
Holding Loss on
|
|
|
|
|
|
|
|
Translation
|
|
|
Marketable
|
|
|
|
|
|
|
|
Adjustments
|
|
|
Securities
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
(10,021
|
)
|
|
$
|
(876
|
)
|
|
$
|
(10,897
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss before reclassifications
|
|
|
(3,065
|
)
|
|
|
(8
|
)
|
|
|
(3,073
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
-
|
|
|
|
555
|
|
|
|
555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
(13,086
|
)
|
|
$
|
(329
|
)
|
|
$
|
(13,415
|
)
|
J & J SNACK FOODS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE Q - QUARTERLY FINANCIAL DATA (UNAUDITED)
|
|
Fiscal Year Ended September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
|
|
|
|
|
|
|
|
Gross
|
|
|
Net
|
|
|
Diluted
|
|
|
|
Net Sales
|
|
|
Profit
|
|
|
Earnings
|
|
|
Share(1)
|
|
|
|
(in thousands, except per share information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Quarter
|
|
$
|
225,570
|
|
|
$
|
65,895
|
|
|
$
|
13,540
|
|
|
$
|
0.72
|
|
2nd Quarter
|
|
|
246,513
|
|
|
|
72,817
|
|
|
|
15,987
|
|
|
|
0.85
|
|
3rd Quarter
|
|
|
295,415
|
|
|
|
94,764
|
|
|
|
25,304
|
|
|
|
1.34
|
|
4th Quarter
|
|
|
316,726
|
|
|
|
97,547
|
|
|
|
24,343
|
|
|
|
1.29
|
|
Total
|
|
$
|
1,084,224
|
|
|
$
|
331,023
|
|
|
$
|
79,174
|
|
|
$
|
4.20
|
|
|
|
Fiscal Year Ended September 24, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
|
|
|
|
|
|
|
|
Gross
|
|
|
Net
|
|
|
Diluted
|
|
|
|
Net Sales
|
|
|
Profit
|
|
|
Earnings
|
|
|
Share(1)
|
|
|
|
(in thousands, except per share information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Quarter
|
|
$
|
222,850
|
|
|
$
|
63,835
|
|
|
$
|
12,978
|
|
|
$
|
0.69
|
|
2nd Quarter
|
|
|
229,710
|
|
|
|
68,749
|
|
|
|
15,588
|
|
|
|
0.83
|
|
3rd Quarter
|
|
|
277,981
|
|
|
|
92,086
|
|
|
|
26,791
|
|
|
|
1.43
|
|
4th Quarter
|
|
|
262,240
|
|
|
|
79,797
|
|
|
|
20,618
|
|
|
|
1.10
|
|
Total
|
|
$
|
992,781
|
|
|
$
|
304,467
|
|
|
$
|
75,975
|
|
|
$
|
4.05
|
|
(1)
|
Total of quarterly amounts do not necessarily agree to the annual
report amounts due to separate quarterly calculations of weighted
average shares outstanding.
|