# J&J Snack Foods Corp: Form 10-Q for the period ended Mar 25, 2023

- Company: [J&J Snack Foods Corp](/companies/jjsf.md) (CIK 785956)
- Form: 10-Q
- Filed: 2023-05-04
- Accepted by EDGAR: May 4, 2023, 20:39 ET
- Period: 2023-03-25
- Accession: 0001437749-23-012588
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/785956/000143774923012588/jjsf20230325_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/785956/000143774923012588/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-03-25.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-12-25 to 2023-03-25 | $337.9m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Revenue | 6 months, 2022-09-25 to 2023-03-25 | $689.2m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Cost of revenue | 3 months, 2022-12-25 to 2023-03-25 | $247.5m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2022-09-25 to 2023-03-25 | $508.0m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2022-12-25 to 2023-03-25 | $90.4m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2022-09-25 to 2023-03-25 | $181.2m | us-gaap:GrossProfit |
| Operating income | 3 months, 2022-12-25 to 2023-03-25 | $10.2m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2022-09-25 to 2023-03-25 | $19.5m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2022-12-25 to 2023-03-25 | $2.4m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2022-09-25 to 2023-03-25 | $4.7m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-12-25 to 2023-03-25 | $6.9m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2022-09-25 to 2023-03-25 | $13.5m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-12-25 to 2023-03-25 | $0.36 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2022-09-25 to 2023-03-25 | $0.70 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-12-25 to 2023-03-25 | $0.36 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2022-09-25 to 2023-03-25 | $0.70 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-12-25 to 2023-03-25 | 19,295,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2022-09-25 to 2023-03-25 | 19,285,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2022-09-25 to 2023-03-25 | $35.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2022-12-25 to 2023-03-25 | $18.2m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Capital expenditure | 6 months, 2022-09-25 to 2023-03-25 | $49.1m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 6 months, 2022-09-25 to 2023-03-25 | $26.9m | us-gaap:PaymentsOfDividends |
| Cash and equivalents | at 2023-03-25 | $43.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-03-25 | $434.5m | us-gaap:AssetsCurrent |
| Total assets | at 2023-03-25 | $1.22bn | us-gaap:Assets |
| Current liabilities | at 2023-03-25 | $159.1m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2023-03-25 | $92.0m | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2023-03-25 | $858.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 27,218 characters.

Statements made in this Form 10-Q that are not historical or current facts are “forward-looking statements” made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). These statements often can be identified by the use of terms such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” “approximate,” “intend,” or “continue,” or, the negative thereof. We intend that such forward-looking statements be subject to the safe of the Act and the Exchange Act. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management’s best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties, assumptions, and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.

### Objective

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide a reader of our financial statements with a narrative form from the perspective of our management regarding our financial condition and results of operations, liquidity and certain other factors that may affect our future results. The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q and within the Company’s Annual Report on Form 10-K filed for the fiscal year ended September 24, 2022.

### Business Overview

The Company manufactures snack foods and distributes frozen beverages which it markets nationally to the foodservice and retail supermarket industries. The Company’s principal snack food products are soft pretzels, frozen novelties, churros and bakery products. We believe we are the largest manufacturer of soft pretzels in the United States. Other snack food products include funnel cake and handheld products. The Company’s principal frozen beverage products are the ICEE brand frozen carbonated beverage and the SLUSH PUPPIE brand frozen non-carbonated beverage,

The Company’s Food Service and Frozen Beverages sales are made principally to foodservice customers including snack bar and food stand locations in leading chain, department, discount, warehouse club and convenience stores; malls and shopping centers; fast food and casual dining restaurants; stadiums and sports arenas; leisure and theme parks; movie theaters; independent retailers; and schools, colleges and other institutions. The Company’s retail supermarket customers are primarily supermarket chains.

#### RESULTS OF OPERATIONS – Three and six months ended March 25, 2023

The following discussion provides a review of results for the three and six months ended March 25, 2023 as compared with the three and six months ended March 26, 2022.

*(in thousands)*

*(in thousands)*

| Summary of Results | Three months ended March 25, 2023 | March 26, 2022 | % Change | Six months ended March 25, 2023 | March 26, 2022 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net Sales | $337,854 | $281,513 | 20.0 % | $689,197 | $600,003 | 14.9 % |
| Cost of goods sold | 247,470 | 216,165 | 14.5 % | 507,958 | 455,280 | 11.6 % |
| Gross Profit | 90,384 | 65,348 | 38.3 % | 181,239 | 144,723 | 25.2 % |
| Operating expenses |  |  |  |  |  |  |
| Marketing | 24,017 | 21,036 | 14.2 % | 47,716 | 41,943 | 13.8 % |
| Distribution | 38,188 | 28,349 | 34.7 % | 80,237 | 61,664 | 30.1 % |
| Administrative | 17,919 | 11,719 | 52.9 % | 34,310 | 22,088 | 55.3 % |
| Other general expense (income) | 67 | 156 | (57.1) % | (545) | 95 | (673.7) % |
| Total Operating Expenses | 80,191 | 61,260 | 30.9 % | 161,718 | 125,790 | 28.6 % |
| Operating Income | 10,193 | 4,088 | 149.3 % | 19,521 | 18,933 | 3.1 % |
| Other income (expense) |  |  |  |  |  |  |
| Investment income | 401 | 160 | 150.6 % | 1,086 | 431 | 152.0 % |
| Interest expense | (1,334) | (57) | 2240.4 % | (2,383) | (75) | 3077.3 % |
| Earnings before income taxes | 9,260 | 4,191 | 120.9 % | 18,224 | 19,289 | (5.5) % |
| Income tax expense | 2,389 | 920 | 159.7 % | 4,720 | 4,927 | (4.2) % |
| NET EARNINGS | $6,871 | $3,271 | 110.1 % | $13,504 | $14,362 | (6.0) % |

| Comparisons as a Percentage of Net Sales | Three months ended March 25, 2023 | March 26, 2022 | Basis Pt Chg | Six months ended March 25, 2023 | March 26, 2022 | Basis Pt Chg |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Gross profit | 26.8 % | 23.2 % | 360 | 26.3 % | 24.1 % | 220 |
| Marketing | 7.1 % | 7.5 % | (40) | 6.9 % | 7.0 % | (10) |
| Distribution | 11.3 % | 10.1 % | 120 | 11.6 % | 10.3 % | 130 |
| Administrative | 5.3 % | 4.2 % | 110 | 5.0 % | 3.7 % | 130 |
| Operating income | 3.0 % | 1.5 % | 150 | 2.8 % | 3.2 % | (40) |
| Earnings before income taxes | 2.7 % | 1.5 % | 120 | 2.6 % | 3.2 % | (60) |
| Net earnings | 2.0 % | 1.2 % | 80 | 2.0 % | 2.4 % | (40) |

#### Net Sales

Net sales increased by $56.3 million, or 20.0%, to $337.9 million for the three months ended March 25, 2023. Net sales in the period included $16.0 million of net sales from Dippin’ Dots. Net sales increased by $89.2 million, or 14.9%, to $689.2 million for the six months ended March 25, 2023. Net sales in the period included $29.3 million of net sales from Dippin’ Dots. Organic sales growth, across both the three months and six months ended March 25, 2023, was driven by growth across all three of the Company’s business segments, led by our core products including soft pretzels, churros, frozen novelties and frozen beverages.

#### Gross Profit

Gross Profit increased by $25.0 million, or 38.3%, to $90.4 million for the three months ended March 25, 2023. As a percentage of sales, gross profit increased from 23.2% to 26.8%. While inflationary trends have gradually improved during the fiscal year, key ingredients including flour, oils, eggs, meats, sugar and dairy continued to experience inflationary pressures compared with the same quarter last year, with average raw material costs up approximately 9%. Three pricing actions implemented in fiscal 2022, along with the initial benefits of our operating initiatives, and improved cost management and productivity, helped to offset the impact of the inflationary pressures noted above.

Gross Profit increased by $36.5 million, or 25.2%, to $181.2 million for the six months ended March 25, 2023. As a percentage of sales, gross profit increased from 24.1% to 26.3%. Key ingredients including flour, oils, eggs, meats, sugar and dairy continued to experience inflationary pressures compared with the same six-month period last year, with average raw material costs up approximately 15%. Three pricing actions implemented in fiscal 2022, along with the initial benefits of our operating initiatives, and improved cost management and productivity, helped to offset the impact of the inflationary pressures noted above.

#### Operating Expenses

Operating Expenses increased $18.9 million, or 30.9%, to $80.2 million for the three months ended March 25, 2023. As a percentage of sales, operating expenses increased from 21.8% to 23.7%, primarily reflecting the ongoing inflationary pressures across distribution and administrative costs, as well as the impact of Dippin’ Dots. As a percentage of sales, distribution expenses increased from 10.1% to 11.3%, reflecting inflationary pressures noted in fuel and outbound freight. As a percentage of sales, marketing expenses decreased from 7.5% to 7.1%. As a percentage of sales, general and administrative expenses increased from 4.2% to 5.3%, with the increase largely attributable to the impact of Dippin’ Dots.

Operating Expenses increased $35.9 million, or 28.6%, to $161.7 million for the six months ended March 25, 2023. As a percentage of sales, operating expenses increased from 21.0% to 23.5%, primarily reflecting the ongoing inflationary pressures across distribution and administrative costs, as well as the impact of Dippin’ Dots. As a percentage of sales, distribution expenses increased from 10.3% to 11.6%, reflecting inflationary pressures noted in fuel and outbound freight. As a percentage of sales, marketing expenses remained relatively flat, decreasing slightly from 7.0% to 6.9%. As a percentage of sales, general and administrative expenses increased from 3.7% to 5.0%, with the increase largely attributable to the impact of Dippin’ Dots.

#### Other Income and Expense

Investment income increased by $0.2 million to $0.4 million and by $0.7 million to $1.1 million for the three months, and six months, ended March 25, 2023, respectively. The increases were primary due to the improving interest rate environment in fiscal 2023.

Interest expense increase by $1.3 million to $1.3 million and by $2.3 million to $2.4 million for the three months, and six months, ended March 25, 2023, respectively, due to the Company’s outstanding borrowings on the Amended Credit Agreement.

#### Income Tax Expense

Income tax expense increased by $1.5 million, or 159.7%, to $2.4 million for the three months ended March 25, 2023. The effective tax rate was 25.8% as compared with 21.9% in the prior year period, with the increase due to the impact of tax benefits on stock-based compensation expense in the prior year period.

Income tax expense decreased by $0.2 million, or 4.2% to $4.7 million for the six months ended March 25, 2023. The effective tax rate was 25.9% as compared with 25.5% in the prior year period.

#### Net Earnings

Net earnings increased by $3.6 million, or 110.1%, for the three months ended March 25, 2023, due to the aforementioned items.

Net earnings decreased by $0.9 million, or 6.0%, for the six months ended March 25, 2023, due to the aforementioned items

There are many factors which can impact our net earnings from year to year and in the long run, among which are the supply and cost of raw materials and labor, insurance costs, factors impacting sales as noted above, the continuing consolidation of our customers, our ability to manage our manufacturing, marketing and distribution activities, our ability to make and integrate acquisitions and changes in tax laws and interest rates.

### Business Segment Discussion

We operate in three segments: Food Service, Retail Supermarket, and Frozen Beverages. The following table is a summary of sales and operating income, which is how we measure segment profit.

*(in thousands)*

*(in thousands)*

| Net Sales | Three months ended March 25, 2023 | March 26, 2022 | % Change | Six months ended March 25, 2023 | March 26, 2022 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Food Service | $218,281 | $176,340 | 23.8 % | $456,578 | $388,072 | 17.7 % |
| Retail Supermarket | 46,360 | 40,757 | 13.7 % | 89,433 | 83,452 | 7.2 % |
| Frozen Beverages | 73,213 | 64,416 | 13.7 % | 143,186 | 128,479 | 11.4 % |
| Total Sales | $337,854 | $281,513 | 20.0 % | $689,197 | $600,003 | 14.9 % |

*(in thousands)*

*(in thousands)*

| Operating Income | Three months ended March 25, 2023 | March 26, 2022 | % Change | Six months ended March 25, 2023 | March 26, 2022 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Food Service | $5,133 | $536 | 857.6 % | $11,520 | $9,537 | 20.8 % |
| Retail Supermarket | 487 | 1,091 | (55.4) % | 1,598 | 6,075 | (73.7) % |
| Frozen Beverages | 4,573 | 2,461 | 85.8 % | 6,403 | 3,321 | 92.8 % |
| Total Operating Income | $10,193 | $4,088 | 149.3 % | $19,521 | $18,933 | 3.1 % |

### Food Service Segment Results

*(in thousands)*

*(in thousands)*

| Food Service Sales to External Customers | Three months ended March 25, 2023 | March 26, 2022 | % Change | Six months ended March 25, 2023 | March 26, 2022 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Soft pretzels | $55,492 | $43,261 | 28.3 % | $107,715 | $93,682 | 15.0 % |
| Frozen novelties | 26,607 | 7,305 | 264.2 % | 48,372 | 15,762 | 206.9 % |
| Churros | 24,920 | 17,447 | 42.8 % | 50,677 | 36,936 | 37.2 % |
| Handhelds | 20,309 | 20,506 | (1.0) % | 43,881 | 39,001 | 12.5 % |
| Bakery | 85,300 | 83,967 | 1.6 % | 194,248 | 191,798 | 1.3 % |
| Other | 5,653 | 3,854 | 46.7 % | 11,685 | 10,893 | 7.3 % |
| Total Food Service | $218,281 | $176,340 | 23.8 % | $456,578 | $388,072 | 17.7 % |
| Food Service Operating Income | $5,133 | $536 | 857.6 % | $11,520 | $9,537 | 20.8 % |

26

Sales to food service customers increased $41.9 million, or 24%, to $218.3 million for the three months ended March 25, 2023, which included approximately $16.0 million in sales from Dippin’ Dots. Soft pretzels sales to food service increased 28% to $55.5 million. Frozen novelties sales increased 264% to $26.6 million, largely driven by Dippin’ Dots sales. Churro sales increased 43% to $24.9 million led by customer expansion and growing menu penetration. Sales of bakery products increased by 2% to $85.3 million. Sales of handhelds decreased by 1% to $20.3 million.

Sales of new products in the first twelve months since their introduction were minimal in the quarter. Sales in the quarter benefited from the impact of the prior fiscal year’s price increases, along with modest increases in volume.

Operating income in our Food Service segment increased $4.6 million in the quarter to $5.1 million, driven by stronger sales and improved gross margin performance.

Sales to food service customers increased $68.5 million, or 18%, to $456.6 million for the six months ended March 25, 2023, which included approximately $29.3 million in sales from Dippin’ Dots. Soft pretzels sales to food service increased 15% to $107.7 million. Frozen novelties sales increased 207% to $48.4 million, largely driven by Dippin’ Dots sales. Churro sales increased 37% to $50.7 million led by customer expansion and growing menu penetration. Sales of bakery products increase by 1% to $194.2 million. Sales of handhelds increased by 13% to $43.9 million.

Sales of new products in the first twelve months since their introduction were minimal in the six months ended March 25, 2023. Price increases benefited sales in the six-month period, and more than offset some volume declines seen in certain product categories.

Operating income in our Food Service segment increased $2.0 million in the six months ended March 25, 2023, to $11.5 million, driven by stronger sales and improved gross margin performance.

### Retail Supermarket Segment Results

*(in thousands)*

*(in thousands)*

| Retail Supermarket Sales to External Customers | Three months ended March 25, 2023 | March 26, 2022 | % Change | Six months ended March 25, 2023 | March 26, 2022 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | --- |
| Soft pretzels | $16,013 | $15,752 | 1.7 % | $30,498 | $31,946 | (4.5) % |
| Frozen novelties | 20,770 | 18,919 | 9.8 % | 38,739 | 36,721 | 5.5 % |
| Biscuits | 5,858 | 5,687 | 3.0 % | 13,771 | 13,958 | (1.3) % |
| Handhelds | 4,099 | 1,069 | 283.4 % | 6,991 | 2,345 | 198.1 % |
| Coupon redemption | (375) | (726) | (48.3) % | (551) | (1,622) | (66.0) % |
| Other | (5) | 56 | (108.9) % | (15) | 104 | (114.4) % |
| Total Retail Supermarket | $46,360 | $40,757 | 13.7 % | $89,433 | $83,452 | 7.2 % |
| Retail Supermarket Operating Income | $487 | $1,091 | (55.4) % | $1,598 | $6,075 | (73.7) % |

Sales of products to retail customers increased $5.6 million, or 14%, to $46.4 million for the three months ended March 25, 2023. Soft pretzel sales increased 2% to $16.0 million, frozen novelties sales increase 10% to $20.8 million, biscuit sales increased 3% to $5.9 million, and handheld sales increased 283% to $4.1 million with the increase in handheld sales largely driven by expansion with a major retailer. Sales of new products in retail supermarkets were minimal in the quarter. Sales in the quarter benefited from the impact of the prior fiscal year’s price increases, along with modest increases in volume.

Operating income in our Retail Supermarkets segment decreased $0.6 million in the quarter to $0.5 million primarily driven by gross margin challenges due to higher promotions and allowances.

Sales of products to retail customers increased $6.0 million, or 7%, to $89.4 million for the six months ended March 25, 2023. Soft pretzel sales decreased 5% to $30.5 million, frozen novelties sales increased 6% to $38.7 million, biscuit sales decreased 1% to $13.8 million, and handheld sales increased 198% to $7.0 million. Sales of new products in retail supermarkets were minimal in the six months ended March 25, 2023. Price increases benefited sales in the six-month period and helped to offset volume declines seen in certain product categories.

Operating income in our Retail Supermarkets segment decreased $4.5 million in the six months ended March 25, 2023 to $1.6 million primarily driven by gross margin challenges due to higher promotions and allowances, and higher distribution expenses.

### Frozen Beverages Segment Results

*(in thousands)*

*(in thousands)*

| Frozen Beverages | Three months ended March 25, 2023 | March 26, 2022 | % Change | Six months ended March 25, 2023 | March 26, 2022 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Beverages | $41,799 | $35,365 | 18.2 % | $80,458 | $69,128 | 16.4 % |
| Repair and maintenance service | 22,585 | 21,000 | 7.5 % | 46,412 | 43,011 | 7.9 % |
| Machines revenue | 8,252 | 7,542 | 9.4 % | 15,263 | 15,389 | (0.8) % |
| Other | 577 | 509 | 13.4 % | 1,053 | 951 | 10.7 % |
| Total Frozen Beverages | $73,213 | $64,416 | 13.7 % | $143,186 | $128,479 | 11.4 % |
| Frozen Beverages Operating Income | $4,573 | $2,461 | 85.8 % | $6,403 | $3,321 | 92.8 % |

Frozen beverage and related product sales increased $8.8 million, or 14%, in the three months ended March 25, 2023. Beverage related sales increased 18% to $41.8 million. Gallon sales were up 12% for the three months led by continued improving trends in travel, sporting events, concerts and amusement parks and theater. Service revenue increased 8% to $22.6 million and machine revenue (primarily sales of frozen beverage machines) increased 9% to $8.3 million due to strong customer installation volume.

Operating income in our Frozen Beverage segment increased $2.1 million in the quarter to $4.6 million, as strong sales drove leverage across the business.

Frozen beverage and related product sales increased $14.7 million, or 11%, in the six months ended March 25, 2023. Beverage related sales increased 16% to $80.5 million. Gallon sales were up 7% for the six months ended March 25, 2023, led by continued improving trends in travel, sporting events, concerts and amusement parks and theater. Sales remained strong for the period despite theater related volume declines in the first fiscal quarter due to the lower performing releases and weather-related impacts during the holiday season. Service revenue increased 8% to $46.4 million. Machine revenue (primarily sales of frozen beverage machines) decreased 1% to $15.3 million, primarily due to the comparative timing of customer installations in the first fiscal quarter.

Operating income in our Frozen Beverage segment increased $3.1 million in the six months ended March 25, 2023 to $6.4 million, as strong sales drove leverage across the business.

### Liquidity and Capital Resources

Although there are many factors that could impact our operating cash flow, most notably net earnings, we believe that our future operating cash flow, along with our borrowing capacity, our current cash and cash equivalent balances and our investment securities is sufficient to satisfy our cash requirements over the next twelve months and beyond, as well as to fund future growth and expansion.

*(in thousands)*

| Cash flows from operating activities | Six months ended March 25, 2023 | March 26, 2022 |
| --- | ---: | ---: |
| Net earnings | $13,504 | $14,362 |
| Non-cash items in net income: |  |  |
| Depreciation of fixed assets | 27,236 | 23,868 |
| Amortization of intangibles and deferred costs | 3,385 | 1,183 |
| (Gain) loss from disposals of property & equipment | (354) | 100 |
| Share-based compensation | 2,552 | 2,350 |
| Deferred income taxes | (787) | (251) |
| (Gain) loss on marketable securities | (22) | 69 |
| Other | (255) | (184) |
| Changes in assets and liabilities, net of effects from purchase of companies | (9,588) | (67,932) |
| Net cash provided by (used in) operating activities | $35,671 | $(26,435) |

- The increase in depreciation of fixed assets was largely due to prior year purchases of property plant and equipment, as well as depreciation expense related to assets acquired in the fiscal 2022 Dippin’ Dots acquisition.
- The increase in amortization of intangibles and deferred costs was related to intangible assets acquired in the fiscal 2022 Dippin’ Dots acquisition.
- The $0.4 million gain from disposals of property & equipment primarily related to the sale of a building.
- The net cash outflow of $9.6 million in cash flows associated with changes in assets and liabilities, net of effects from purchase of companies, in the six months ended March 25, 2023, was primarily driven by a decrease in accounts payable and accrued liabilities of $25.7 million, offset somewhat by a $10.5 million decrease in accounts receivable and a $4.8 million decrease in prepaid expenses. In the prior year, the net $67.9 million cash outflow was largely attributable to increases in inventory of $36.5 million and increases in accounts receivable of $25.0 million.

*(in thousands)*

| Cash flows from investing activities | Six months ended March 25, 2023 | March 26, 2022 |
| --- | ---: | ---: |
| Purchases of property, plant and equipment | $(49,124) | $(35,306) |
| Proceeds from redemption and sales of marketable securities | 5,300 | 11,526 |
| Proceeds from disposal of property and equipment | 797 | 589 |
| Net cash used in investing activities | $(43,027) | $(23,191) |

- Purchases of property, plant and equipment include spending for production growth, in addition to acquiring new equipment, infrastructure replacements, and upgrades to maintain competitive standing and position us for future opportunities. The increase was primarily due to increased spend for new lines at various plants aimed at increasing capacity.
- The decrease in proceeds from redemption and sales of marketable securities was due to a strategic decision to no longer re-invest redeemed proceeds into marketable securities given the low interest rate environment.

*(in thousands)*

| Cash flows from financing activities | Six months ended March 25, 2023 | March 26, 2022 |
| --- | ---: | ---: |
| Proceeds from issuance of stock | $4,059 | $11,741 |
| Borrowings under credit facility | 92,000 | - |
| Repayment of borrowings under credit facility | (55,000) | - |
| Payments on finance lease obligations | (71) | (111) |
| Payment of cash dividends | (26,914) | (24,163) |
| Net cash provided by (used in) financing activities | $14,074 | $(12,533) |

- The decrease in proceeds from issuance of stock was primarily due to a lower rate of option exercises in the six months ended March 25, 2023 compared with the six months ended March 26, 2022.
- Borrowings under credit facility and repayment of borrowings under credit facility relate to the Company’s cash draws and repayments made in the six months ended March 25, 2023 to primarily fund working capital needs.
- Dividends paid increased as our quarterly dividend was raised during fiscal 2022.

### Liquidity

As of March 25, 2023, we had $43.3 million of Cash and Cash Equivalents, and $4.4 million of Marketable Securities.

In December 2021, the Company entered into an amended and restated loan agreement (the “Credit Agreement”) with our existing banks which provided for up to a $50 million revolving credit facility repayable in December 2026.

Interest accrues, at the Company’s election, at (i) the BSBY Rate (as defined in the Credit Agreement) plus an applicable margin, based upon the Consolidated Net Leverage Ratio, as defined in the Credit Agreement, or (ii) the Alternate Base Rate (a rate based on the higher of (a) the prime rate announced from time-to-time by the Administrative Agent, (b) the Federal Reserve System’s federal funds rate, plus 0.50% or (c) the Daily BSBY Rate, plus an applicable margin). The Alternate Base Rate is defined in the Credit Agreement.

The Credit Agreement requires the Company to comply with various affirmative and negative covenants, including without limitation (i) covenants to maintain a minimum specified interest coverage ratio and maximum specified net leverage ratio, and (ii) subject to certain exceptions, covenants that prevent or restrict the Company’s ability to pay dividends, engage in certain mergers or acquisitions, make certain investments or loans, incur future indebtedness, alter its capital structure or line of business, prepay subordinated indebtedness, engage in certain transactions with affiliates, or amend its organizational documents. As of March 25, 2023, the Company is in compliance with all financial covenants of the Credit Agreement.

On June 21, 2022, the Company entered into an amendment to the Credit Agreement, the “Amended Credit Agreement” which provided for an incremental increase of $175 million in available borrowings. The Amended Credit Agreement also includes an option to increase the size of the revolving credit facility by up to an amount not to exceed in the aggregate the greater of $225 million or $50 million, plus the Consolidated EBITDA of the Borrowers, subject to the satisfaction of certain terms and conditions.

As of March 25, 2023, we had $92.0 million of outstanding borrowings drawn on the Amended Credit Agreement. As of March 25, 2023, we had $123.2 million of additional borrowing capacity, after giving effect to the $9.8 million of letters of credit outstanding.

### Recently Issued and Adopted Accounting Pronouncements

See Note 8 to the condensed consolidated financial statements included in this Form 10-Q for a discussion of recently adopted accounting guidance and other new accounting guidance.

### Critical Accounting Estimates

We consider revenue recognition, allowance for doubtful receivables, valuation of goodwill, valuation of long-lived assets and other intangible assets, insurance reserves, income taxes, and business combinations to be critical accounting estimates. These policies are summarized in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended September 24, 2022. These critical accounting policies require us to make estimates and assumptions that affect the amounts reported in the consolidated condensed financial statements and accompanying notes.

## Market risk

As filed, 262 characters.

There has been no material change in the Company’s assessment of its sensitivity to market risk since its presentation set forth, in item 7a. “Quantitative and Qualitative Disclosures About Market Risk,” in its 2022 annual report on Form 10-K filed with the SEC.

## Controls and procedures

As filed, 1,542 characters.

The Chief Executive Officer and the Chief Financial Officer of the Company (its principal executive officer and principal financial officer, respectively) have concluded, based on their evaluation as of March 25, 2023, that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There has been no change in the Company’s internal control over financial reporting during the quarter ended March 25, 2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. During the fiscal third quarter of 2022, the Company completed the acquisition of Dippin’ Dots. As permitted by SEC staff interpretive guidance that an assessment of a recently acquired business may be omitted from the scope of evaluation for a period of up to one year following the acquisition, management excluded Dippin’ Dots from its interim evaluation of internal controls over financial reporting.

## Risk factors

As filed, 233 characters.

For information on risk factors, please refer to “Risk Factors” in Part I, Item 1A of the Company’s Form 10-K for the fiscal year ended September 24, 2022. The risks identified in that report have not changed in any material respect.

Filed May 4, 2023.
Source: SEC EDGAR, the filing index for accession 0001437749-23-012588. Last ingested by Listed: Oct 24, 2026, 14:56 ET. No prices; not investment advice.