J&J SNACK FOODS CORP 10-Q

jjsf20220326_10q.htm       UNITED STATES   SECURITIES AND EXCHANGE COMMISSION   Washington, D.C. 20549   FORM 10-Q   (Mark One)   ☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934   For the period ended  March 26, 2022 or   ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934   Commission File Number:    0-14616   J&J SNACK FOODS CORP. (Exact name of registrant as specified in its charter)   New Jersey 22-1935537 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)        6000 Central Highway , Pennsauken , New Jersey 08109 (Address of principal executive offices)   Telephone ( 856 ) 665-9533   Securities registered pursuant to Section 12(b) of the Exchange Act:     Title of Each Class   Trading Symbol(s)   Name of Each Exchange on Which Registered Common Stock, no par value   JJSF   The  NASDAQ  Global Select Market   Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No   Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No   Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.   Large Accelerated filer ☒ Accelerated filer ☐         Non-accelerated filer ☐         Smaller reporting company ☐     Emerging growth company ☐   If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐   Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No   At April 29, 2022 there were 19,174,920 shares of the Registrant’s Common Stock outstanding.   1     INDEX   Page Number Part I.   Financial Information       Item l.   Consolidated Financial Statements       Consolidated Balance Sheets – March 26, 2022 (unaudited) and September 25, 2021 3     Consolidated Statements of Earnings (unaudited) – Three and Six Months Ended March 26, 2022 and March 27, 2021 4     Consolidated Statements of Comprehensive Income (unaudited) – Three and Six Months Ended March 26, 2022 and March 27, 2021 5     Consolidated Statements of Changes In Stockholders’ Equity (unaudited) – Three and Six Months Ended March 26, 2022 and March 27, 2021 6     Consolidated Statements of Cash Flows (unaudited) – Six Months Ended March 26, 2022 and March 27, 2021 7     Notes to the Consolidated Financial Statements (unaudited) 8     Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations 26     Item 3.   Quantitative and Qualitative Disclosures About Market Risk 30     Item 4.   Controls and Procedures 30     Part II.   Other Information 31     Item 6.   Exhibits 31   2       J & J SNACK FOODS CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts)       March 26,               2022     September 25,       (unaudited)     2021   Assets                 Current assets                 Cash and cash equivalents   $ 221,017     $ 283,192   Marketable securities held to maturity     4,530       7,980   Accounts receivable, net     187,933       162,939   Inventories     158,991       123,160   Prepaid expenses and other     11,805       7,498   Total current assets     584,276       584,769                     Property, plant and equipment, at cost                 Land     2,494       2,494   Buildings     26,582       26,582   Plant machinery and equipment     340,534       343,716   Marketing equipment     263,494       258,624   Transportation equipment     10,912       10,315   Office equipment     44,641       34,648   Improvements     48,073       45,578   Construction in progress     45,418       35,285   Total Property, plant and equipment, at cost     782,148       757,242   Less accumulated depreciation and amortization     504,249       490,055   Property, plant and equipment, net     277,899       267,187                     Other assets                 Goodwill     121,833       121,833   Other intangible assets, net     76,599       77,776   Marketable securities held to maturity     -       4,047   Marketable securities available for sale     5,951       10,084   Operating lease right-of-use assets     53,892       54,555   Other     2,878       1,968   Total other assets     261,153       270,263   Total Assets   $ 1,123,328     $ 1,122,219                     Liabilities and Stockholders' Equity                 Current Liabilities                 Current finance lease liabilities   $ 127     $ 182   Accounts payable     101,238       96,789   Accrued insurance liability     15,525       16,260   Accrued liabilities     6,456       10,955   Current operating lease liabilities     13,747       13,395   Accrued compensation expense     16,487       17,968   Dividends payable     12,136       12,080   Total current liabilities     165,716       167,629                     Noncurrent finance lease liabilities     336       392   Noncurrent operating lease liabilities     45,501       46,557   Deferred income taxes     61,339       61,578   Other long-term liabilities     455       409                     Stockholders' Equity                 Preferred stock, $ 1 par value; authorized 10,000,000 shares; none issued     -       -   Common stock, no par value; authorized, 50,000,000 shares; issued and outstanding 19,173,000 and 19,084,000 respectively     87,688       73,597   Accumulated other comprehensive loss     ( 13,281 )     ( 13,383 ) Retained Earnings     775,574       785,440   Total stockholders' equity     849,981       845,654   Total Liabilities and Stockholders' Equity   $ 1,123,328     $ 1,122,219     The accompanying notes are an integral part of these statements.   3        J & J SNACK FOODS CORP. AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF EARNINGS  (Unaudited)  (in thousands, except per share amounts)       Three Months Ended     Six Months Ended       March 26,     March 27,     March 26,     March 27,       2022     2021     2022     2021                                     Net sales   $ 281,513     $ 256,178     $ 600,003     $ 497,175                                     Cost of goods sold     216,165       195,282       455,280       386,154   Gross profit     65,348       60,896       144,723       111,021                                     Operating expenses                                 Marketing     21,036       19,192       41,943       36,493   Distribution     28,349       25,443       61,664       48,332   Administrative     11,719       9,216       22,088       18,656   Other general expense     156       ( 185 )     95       ( 268 ) Total operating expenses     61,260       53,666       125,790       103,213                                     Operating income     4,088       7,230       18,933       7,808                                     Other income (expense)                                 Investment income     160       579       431       1,949   Interest expense & other     ( 57 )     4       ( 75 )     ( 11 )                                   Earnings before income taxes     4,191       7,813       19,289       9,746                                     Income taxes     920       1,752       4,927       1,907                                     NET EARNINGS   $ 3,271     $ 6,061     $ 14,362     $ 7,839                                     Earnings per diluted share   $ 0.17     $ 0.32     $ 0.75     $ 0.41                                     Weighted average number of diluted shares     19,206       19,130       19,180       19,081                                     Earnings per basic share   $ 0.17     $ 0.32     $ 0.75     $ 0.41                                     Weighted average number of basic shares     19,134       19,006       19,110       18,971     The accompanying notes are an integral part of these statements.   4       J & J SNACK FOODS CORP. AND SUBSIDIARIES   CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (in thousands)       Three Months Ended     Six months ended       March 26,     March 27,     March 26,     March 27,       2022     2021     2022     2021                                     Net earnings   $ 3,271     $ 6,061     $ 14,362     $ 7,839                                     Foreign currency translation adjustments     546       ( 531 )     102       1,748   Total other comprehensive income (loss), net of tax     546       ( 531 )     102       1,748                                     Comprehensive income   $ 3,817     $ 5,530     $ 14,464     $ 9,587     The accompanying notes are an integral part of these statements.   5        J & J Snack Foods Corp. and Subsidiaries  CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY  (in thousands)                       Accumulated                                       Other                       Common Stock     Comprehensive     Retained               Shares     Amount     Loss     Earnings     Total                                             Balance as September 25, 2021     19,084     $ 73,597     $ ( 13,383 )   $ 785,440     $ 845,654   Issuance of common stock upon exercise of stock options     5       706       -       -       706   Foreign currency translation adjustment     -       -       ( 444 )     -       ( 444 ) Dividends declared     -       -       -       ( 12,092 )     ( 12,092 ) Share-based compensation     -       1,083       -       -       1,083   Net earnings     -       -       -       11,091       11,091                                             Balance at December 25, 2021     19,089     $ 75,386     $ ( 13,827 )   $ 784,439     $ 845,998   Issuance of common stock upon exercise of stock options     76       10,012       -       -       10,012   Issuance of common stock for employee stock purchase plan     8       1,023       -       -       1,023   Foreign currency translation adjustment     -       -       546       -       546   Dividends declared     -       -       -       ( 12,136 )     ( 12,136 ) Share-based compensation     -       1,267       -       -       1,267   Net earnings     -       -       -       3,271       3,271                                             Balance at March 26, 2022     19,173     $ 87,688     $ ( 13,281 )   $ 775,574     $ 849,981                         Accumulated                                       Other                       Common Stock     Comprehensive     Retained               Shares     Amount     Loss     Earnings     Total                                             Balance as September 26, 2020     18,915     $ 49,268     $ ( 15,587 )   $ 775,817     $ 809,498   Issuance of common stock upon exercise of stock options     41       4,390       -       -       4,390   Foreign currency translation adjustment     -       -       2,279       -       2,279   Dividends declared     -       -       -       ( 10,900 )     ( 10,900 ) Share-based compensation     -       1,244       -       -       1,244   Net earnings     -       -       -       1,778       1,778                                             Balance at December 26, 2020     18,956     $ 54,902     $ ( 13,308 )   $ 766,695     $ 808,289   Issuance of common stock upon exercise of stock options     72       8,384       -       -       8,384   Issuance of common stock for employee stock purchase plan     6       714       -       -       714   Foreign currency translation adjustment     -       -       ( 531 )     -       ( 531 ) Dividends declared     -       -       -       ( 10,943 )     ( 10,943 ) Share-based compensation     -       1,026       -       -       1,026   Net earnings     -       -       -       6,061       6,061                                             Balance at March 27, 2021     19,034     $ 65,026     $ ( 13,839 )   $ 761,813     $ 813,000     The accompanying notes are an integral part of these statements.   6       J & J SNACK FOODS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)       Six Months Ended       March 26,     March 27,       2022     2021   Operating activities:                 Net earnings   $ 14,362     $ 7,839   Adjustments to reconcile net earnings to net cash provided by operating activities:                 Depreciation of fixed assets     23,868       24,253   Amortization of intangibles and deferred costs     1,183       1,457   Loss from disposals of property & equipment     100       -   Share-based compensation     2,350       2,270   Deferred income taxes     ( 251 )     ( 4 ) Loss (Gain) on marketable securities     69       ( 768 ) Other     ( 184 )     ( 163 ) Changes in assets and liabilities net of effects from purchase of companies                 Increase in accounts receivable     ( 25,031 )     ( 10,884 ) Increase in inventories     ( 36,538 )     ( 6,432 ) Increase in prepaid expenses     ( 4,308 )     ( 118 ) (Decrease) increase in accounts payable and accrued liabilities     ( 2,055 )     9,331   Net cash (used in) provided by operating activities     ( 26,435 )     26,781   Investing activities:                 Purchases of property, plant and equipment     ( 35,306 )     ( 18,829 ) Proceeds from redemption and sales of marketable securities     11,526       41,337   Proceeds from disposal of property and equipment     589       1,262   Other     -       18   Net cash (used in) provided by investing activities     ( 23,191 )     23,788   Financing activities:                 Proceeds from issuance of stock     11,741       13,582   Payments on finance lease obligations     ( 111 )     ( 173 ) Payment of cash dividend     ( 24,163 )     ( 21,776 ) Net cash used in financing activities     ( 12,533 )     ( 8,367 ) Effect of exchange rate on cash and cash equivalents     ( 16 )     375   Net (decrease) increase in cash and cash equivalents     ( 62,175 )     42,577   Cash and cash equivalents at beginning of period     283,192       195,809   Cash and cash equivalents at end of period   $ 221,017     $ 238,386     The accompanying notes are an integral part of these statements.   7     J & J SNACK FOODS CORP. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)     Note 1 The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10 -Q and Rule 10 - 01 of Regulation S- X. They do not include all information and notes required by generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10 -K for the year ended September 25, 2021.   In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position and the results of operations and cash flows.   The results of operations for the three and six months ended March 26, 2022 and March 27, 2021 are not necessarily indicative of results for the full year. Sales of our frozen beverages and frozen novelties are generally higher in the third and fourth quarters due to warmer weather. Also, approximately 2/3 of our sales are to venues and locations that previously shut down or sharply curtailed their foodservice operations as a result of COVID- 19. While the majority of these venues have reopened, the extent of the future impact of COVID- 19 on our operations depends on future developments of the virus and its effects which are uncertain at this time.   While we believe that the disclosures presented are adequate to make the information not misleading, we suggest that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes included in the Company’s Annual Report on Form 10 -K for the fiscal year ended September 25, 2021.   8       Note 2   Revenue Recognition   When Performance Obligations Are Satisfied A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account for revenue recognition. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.   The singular performance obligation of our customer contracts for product and machine sales is determined by each individual purchase order and the respective products ordered, with revenue being recognized at a point-in-time when the obligation under the terms of the agreement is satisfied and product control is transferred to our customer. Specifically, control transfers to our customers when the product is delivered to, installed, or picked up by our customers based upon applicable shipping terms, as our customers can direct the use and obtain substantially all of the remaining benefits from the product at this point in time. The performance obligations in our customer contracts for product are generally satisfied within 30 days.   The singular performance obligation of our customer contracts for time and material repair and maintenance equipment service is the performance of the repair and maintenance with revenue being recognized at a point-in-time when the repair and maintenance is completed.   The singular performance obligation of our customer repair and maintenance equipment service contracts is the performance of the repair and maintenance with revenue being recognized over the time the service is expected to be performed. Our customers are billed for service contracts in advance of performance and therefore we have a contract liability recorded within Accrued liabilities on our balance sheet.   Significant Payment Terms In general, within our customer contracts, the purchase order identifies the product, quantity, price, pick-up allowances, payment terms and final delivery terms. Although some payment terms may be more extended, presently the majority of our payment terms are 30 days. As a result, we have used the available practical expedient and, consequently, do not adjust our revenues for the effects of a significant financing component.   9     Shipping All amounts billed to customers related to shipping and handling are classified as revenues; therefore, we recognize revenue for shipping and handling fees at the time the products are shipped or when services are performed. The cost of shipping products to the customer is recognized at the time the products are shipped to the customer and our policy is to classify them as Distribution expenses.   Variable Consideration In addition to fixed contract consideration, our contracts include some form of variable consideration, including sales discounts, trade promotions and certain other sales and consumer incentives, including rebates and coupon redemptions. In general, variable consideration is treated as a reduction in revenue when the related revenue is recognized. Depending on the specific type of variable consideration, we use the most likely amount method to determine the variable consideration. We believe there will be no significant changes to our estimates of variable consideration when any related uncertainties are resolved with our customers. We review and update our estimates and related accruals of variable consideration each period based on historical experience. Our recorded liability for allowances, end-user pricing adjustments and trade spending was $ 15.2 million at March 26, 2022 and $ 14.6 million at September 25, 2021.     Warranties & Returns We provide all customers with a standard or assurance type warranty. Either stated or implied, we provide assurance the related products will comply with all agreed-upon specifications and other warranties provided under the law. No services beyond an assurance warranty are provided to our customers.   We do not grant a general right of return. However, customers may return defective or non-conforming products. Customer remedies may include either a cash refund or an exchange of the product. We do not estimate a right of return and related refund liability as returns of our products are rare.   Contract Balances Our customers are billed for service contracts in advance of performance and therefore we have contract liabilities on our balance sheet as follows:       (in thousands)       Three Months Ended     Six Months Ended       March 26,     March 27,     March 26,     March 27,       2022     2021     2022     2021                                     Beginning Balance   $ 1,030     $ 1,716     $ 1,097     $ 1,327   Additions to contract liability     1,374       1,201       2,573       2,945   Amounts recognized as revenue     ( 1,312 )     ( 1,827 )     ( 2,578 )     ( 3,182 ) Ending Balance   $ 1,092     $ 1,090     $ 1,092     $ 1,090     10     Disaggregation of Revenue See Note 9 for disaggregation of our net sales by class of similar product and type of customer.   Allowance for Doubtful Receivables   We provide an allowance for doubtful receivables after taking into consideration historical experience and other factors. On September 27, 2020, the Company adopted guidance issued by the FASB in ASU 2016 - 13, Measurement of Credit Losses on Financial Instruments , which requires companies to recognize an allowance that reflects a current estimate of credit losses expected to be incurred over the life of the asset. Adoption of this new guidance did not have a material impact on the consolidated financial statements. The Company continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses. The allowance for doubtful accounts considers a number of factors including the age of receivable balances, the history of losses, expectations of future credit losses and the customers’ ability to pay off obligations. The allowance for doubtful receivables was $ 1,564,000 and $ 1,405,000 on March 26, 2022 and September 25, 2021, respectively.     Note 3 Depreciation of equipment and buildings is provided for by the straight-line method over the assets’ estimated useful lives. Amortization of improvements is provided for by the straight-line method over the term of the lease or the assets’ estimated useful lives, whichever is shorter. Licenses and rights, customer relationships and non-compete agreements arising from acquisitions are amortized by the straight-line method over periods ranging from 2 to 20 years. Depreciation expense was $ 11,945,000 and $ 11,984,000 for the three months ended March 26, 2022 and March 27, 2021, respectively and $ 23,868,000 and $ 24,253,000 for the six months ended March 26, 2022 and March 27, 2021, respectively.     Note 4 Basic earnings per common share (EPS) excludes dilution and is computed by dividing income available to common shareholders by the weighted average common shares outstanding during the period. Diluted EPS takes into consideration the potential dilution that could occur if securities (stock options) or other contracts to issue common stock were exercised and converted into common stock. Our calculation of EPS is as follows:   11           Three Months Ended March 26, 2022       Income     Shares     Per Share       (Numerator)     (Denominator)     Amount                                 (in thousands, except per share amounts)   Basic EPS                         Net earnings available to common stockholders   $ 3,271       19,134     $ 0.17                             Effect of dilutive securities                         Options     -       72       -                             Diluted EPS                         Net earnings available to common stockholders plus assumed conversions   $ 3,271       19,206     $ 0.17     270,352 anti-dilutive shares have been excluded in the computation of EPS for the three months ended March 26, 2022.       Six Months ended March 26, 2022       Income     Shares     Per Share       (Numerator)     (Denominator)     Amount                                 (in thousands, except per share amounts)   Basic EPS                         Net earnings available to common stockholders   $ 14,362       19,110     $ 0.75                             Effect of dilutive securities                         Options     -       70       -                             Diluted EPS                         Net earnings available to common stockholders plus assumed conversions   $ 14,362       19,180     $ 0.75     271,452 anti-dilutive shares have been excluded in the computation of EPS for the six months ended March 26, 2022.   12         Three Months Ended March 27, 2021       Income     Shares     Per Share       (Numerator)     (Denominator)     Amount                                 (in thousands, except per share amounts)   Basic EPS                         Net earnings available to common stockholders   $ 6,061       19,006     $ 0.32                             Effect of dilutive securities                         Options     -       124       -                             Diluted EPS                         Net earnings available to common stockholders plus assumed conversions   $ 6,061       19,130     $ 0.32     163,072 anti-dilutive shares have been excluded in the computation of EPS for the three months ended March 27, 2021.       Six Months Ended March 27, 2021       Income     Shares     Per Share       (Numerator)     (Denominator)     Amount                                 (in thousands, except per share amounts)   Basic EPS                         Net earnings available to common stockholders   $ 7,839       18,971     $ 0.41                             Effect of dilutive securities                         Options     -       110       -                             Diluted EPS                         Net earnings available to common stockholders plus assumed conversions   $ 7,839       19,081     $ 0.41     184,672 anti-dilutive shares have been excluded in the computation of EPS for the six months ended March 27, 2021.     Note 5 At March 26, 2022, the Company has three stock-based employee compensation plans. Share-based compensation expense was recognized as follows:       Three Months Ended     Six Months Ended       March 26,     March 27,     March 26,     March 27,       2022     2021     2022     2021                                                                                                         Stock options   $ 586     $ 447     $ 1,400     $ 993   Stock purchase plan     90       64       150       342   Stock issued to an outside director     11       22       22       22   Restricted stock issued to an employee     152       47       224       47   Performance stock issued to employees     82       -       121       -   Total share-based compensation   $ 921     $ 580     $ 1,917     $ 1,404                                     The above compensation is net of tax benefits   $ 346     $ 446     $ 433     $ 866     13     The fair value of each option grant is estimated on the date of grant using the Black-Scholes options-pricing model.   The Company did not grant any stock options during the fiscal year 2022 six -month period.   During the fiscal year 2021 six -month period, the Company granted 300 stock options. The weighted-average grant date fair value of these options was $ 29.54 .   In November 2021, the Company issued 8,873 service share units (“RSU”)’s. Each RSU entitles the awardee to one share of common stock upon vesting. The fair value of RSU’s was determined based upon the closing price of the Company’s common stock on the date of grant. No such RSU’s were issued in the three -months ended March 26, 2022 or in the three or six -months ended March 27, 2021.   In November 2021, the Company also issued 8,868 performance share units (“PSU”)’s. Each PSU may result in the issuance of up to two shares of common stock upon vesting, dependent upon the level of achievement of the applicable Performance Goal. The fair value of the PSU’s was determined based upon the closing price of the Company’s common stock on the date of grant. Additionally, the Company applies a quarterly probability assessment in computing this non-cash compensation expense, and any change in estimate is reflected as a cumulative adjustment to expense in the quarter of the change. No such PSU’s were issued in the three months ended March 26, 2022 or in the three or six -months ended March 27, 2021.   Expected volatility is based on the historical volatility of the price of our common shares over the past 51 months for 5 -year options and 10 years for 10 -year options. We use historical information to estimate expected life and forfeitures within the valuation model. The expected term of awards represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Compensation cost is recognized using a straight-line method over the vesting or service period and is net of estimated forfeitures.     Note 6 We account for our income taxes under the liability method. Under the liability method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates that will be in effect when these differences reverse. Deferred tax expense is the result of changes in deferred tax assets and liabilities.   Additionally, we recognize a liability for income taxes and associated penalties and interest for tax positions taken or expected to be taken in a tax return which are more likely than not to be overturned by taxing authorities (“uncertain tax positions”).  We have not recognized a tax benefit in our financial statements for these uncertain tax positions.     14     The total amount of gross unrecognized tax benefits is $ 343,000 on both March 26, 2022 and September 25, 2021, respectively, all of which would impact our effective tax rate over time, if recognized. We recognize interest and penalties related to uncertain tax positions as a part of the provision for income taxes. As of March 26, 2022, and September 25, 2021, the Company has $ 267,000 of accrued interest and penalties.   In addition to our federal tax return and tax returns for Mexico and Canada, we file tax returns in all states that have a corporate income tax with virtually all open for examination for three to four years.   Our effective tax rate for the six months ended March 26, 2022 was 26 %. Our effective tax rate for the six months ended March 27, 2021 was 20 %, and was favorably impacted by the tax benefits related to share-based compensation. Our effective tax rate was 22 % for the three months ended March 26, 2022 and for the three months ended March 27, 2021 as both were favorably impacted by the tax benefits related to share-based compensation.   Note 7 In June 2016, the FASB issued ASU 2016 - 13, Measurement of Credit Losses on Financial Instruments , which changes the impairment model used to measure credit losses for most financial assets. We are required to recognize an allowance that reflects the Company’s current estimate of credit losses expected to be incurred over the life of the financial asset, including trade receivables and held-to-maturity debt securities.   The Company adopted this guidance in the first quarter of Fiscal 2021 using the modified retrospective transition method. The adoption of ASU 2016 - 13 did not have a material impact on the Company’s consolidated financial statements.     Note 8 Inventories consist of the following:       March 26,     September 25,       2022     2021       (unaudited)               (in thousands)                     Finished goods   $ 74,457     $ 49,756   Raw materials     38,023       29,529   Packaging materials     13,130       11,168   Equipment parts and other     33,381       32,707   Total inventories   $ 158,991     $ 123,160     15         Note 9 We principally sell our products to the food service and retail supermarket industries. Sales and results of our frozen beverages business are monitored separately from the balance of our food service business because of different distribution and capital requirements. We maintain separate and discrete financial information for the three operating segments mentioned above which is available to our Chief Operating Decision Maker.   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 novelties, churros, handheld products and baked goods. Our customers in the food service segment include snack bars and food stands in chain, department and discount stores; malls and shopping centers; casual dining restaurants, fast food 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 novelties 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 handheld products. Within the retail supermarket channel, our frozen and prepackaged products are purchased by the consumer for consumption at home.   Frozen Beverages   The Company markets frozen beverages primarily under the names ICEE, SLUSH PUPPIE and PARROT ICE which are sold primarily in the United States, Mexico and Canada. We also provide repair and maintenance service to customers for customers’ owned equipment.   16     The Chief Operating Decision Maker for Food Service, Retail Supermarkets and Frozen Beverages reviews monthly detailed operating income statements and sales reports in order to assess performance and allocate resources to each individual segment. Sales and operating income are key variables monitored by the Chief Operating Decision Maker and management when determining each segment’s, and the Company’s, financial condition and operating performance. In addition, the Chief Operating Decision Maker reviews and evaluates depreciation, capital spending and assets of each segment on a quarterly basis to monitor cash flow and asset needs of each segment. Information regarding the operations in these three reportable segments is as follows:       Three Months Ended     Six Months Ended       March 26,     March 27,     March 26,     March 27,       2022     2021     2022     2021   Sales to external customers:                                 Food Service                                 Soft pretzels   $ 43,261     $ 36,776     $ 93,682     $ 69,463   Frozen novelties     7,305       10,590       15,762       16,885   Churros     17,447       14,720       36,936       26,262   Handhelds     20,506       19,992       39,001       37,603   Bakery     83,967       82,910       191,798       171,874   Other     3,854       4,336       10,893       7,662   Total Food Service   $ 176,340     $ 169,324     $ 388,072     $ 329,749                                     Retail Supermarket                                 Soft pretzels   $ 15,752     $ 15,789     $ 31,946     $ 29,677   Frozen novelties     18,919       19,386       36,721       34,702   Biscuits     5,687       6,495       13,958       14,155   Handhelds     1,069       2,243       2,345       5,023   Coupon redemption     ( 726 )     ( 608 )     ( 1,622 )     ( 1,683 ) Other     56       601       104       1,126   Total Retail Supermarket   $ 40,757     $ 43,906     $ 83,452     $ 83,000                                     Frozen Beverages                                 Beverages   $ 35,365     $ 18,529     $ 69,128     $ 34,384   Repair and maintenance service     21,000       18,218       43,011       37,114   Machines revenue     7,542       5,663       15,389       12,152   Other     509       538       951       776   Total Frozen Beverages   $ 64,416     $ 42,948     $ 128,479     $ 84,426                                     Consolidated sales   $ 281,513     $ 256,178     $ 600,003     $ 497,175                                     Depreciation and amortization:                                 Food Service   $ 6,670     $ 7,116     $ 13,339     $ 13,902   Retail Supermarket     386       384       752       770   Frozen Beverages     5,484       5,648       10,960       11,424   Total depreciation and amortization   $ 12,540     $ 13,148     $ 25,051     $ 26,096                                     Operating income:                                 Food Service   $ 536     $ 6,055     $ 9,537     $ 12,235   Retail Supermarket     1,091       6,364       6,075       11,087   Frozen Beverages     2,461       ( 5,189 )     3,321       ( 15,514 ) Total operating income   $ 4,088     $ 7,230     $ 18,933     $ 7,808                                     Capital expenditures:                                 Food Service   $ 13,851     $ 7,246     $ 24,084     $ 15,532   Retail Supermarket     1,094       80       3,623       101   Frozen Beverages     4,261       1,827       7,599       3,196   Total capital expenditures   $ 19,206     $ 9,153     $ 35,306     $ 18,829                                     Assets:                                 Food Service   $ 799,710     $ 760,557     $ 799,710     $ 760,557   Retail Supermarket     33,206       33,395       33,206       33,395   Frozen Beverages     290,412       270,963       290,412       270,963   Total assets   $ 1,123,328     $ 1,064,915     $ 1,123,328     $ 1,064,915     17       Note 10 Our three reporting units, which are also reportable segments, are Food Service, Retail Supermarkets and Frozen Beverages.   The carrying amounts of acquired intangible assets for the Food Service, Retail Supermarkets and Frozen Beverage segments as of March 26, 2022 and September 25, 2021 are as follows:       March 26, 2022     September 25, 2021       Gross             Gross               Carrying     Accumulated     Carrying     Accumulated       Amount     Amortization     Amount     Amortization       (in thousands)   FOOD SERVICE                                                                   Indefinite lived intangible assets                                 Trade names   $ 9,596     $ -     $ 10,408     $ 812                                     Amortized intangible assets                                 Non compete agreements     670       670       670       670   Customer relationships     13,000       6,838       13,000       6,188   License and rights     1,690       1,438       1,690       1,396   TOTAL FOOD SERVICE   $ 24,956     $ 8,946     $ 25,768     $ 9,066                                     RETAIL SUPERMARKETS                                                                   Indefinite lived intangible assets                                 Trade names   $ 12,316     $ -     $ 12,777     $ 461                                     Amortized intangible Assets                                 Trade names     649       649       649       649   Customer relationships     7,907       6,308       7,907       5,931   TOTAL RETAIL SUPERMARKETS   $ 20,872     $ 6,957     $ 21,333     $ 7,041                                                                       FROZEN BEVERAGES                                                                   Indefinite lived intangible assets                                 Trade names   $ 9,315     $ -     $ 9,315     $ -   Distribution rights     36,100       -       36,100       -                                     Amortized intangible assets                                 Customer relationships     1,439       473       1,439       400   Licenses and rights     1,400       1,107       1,400       1,072   TOTAL FROZEN BEVERAGES   $ 48,254     $ 1,580     $ 48,254     $ 1,472                                     CONSOLIDATED   $ 94,082     $ 17,483     $ 95,355     $ 17,579     Amortizing intangible assets are being amortized by the straight-line method over periods ranging from 2 to 20 years and amortization expense is reflected throughout operating expenses. Aggregate amortization expense of intangible assets for the three months ended March 26, 2022 and March 27, 2021 was $ 594,000 and $ 777,000 , respectively. Aggregate amortization expense of intangible assets for the six months ended March 26, 2022 and March 27, 2021 was $ 1,174,000 and $ 1,457,000 , respectively.   18     Estimated amortization expense for the next five fiscal years is approximately $ 2,300,000 in 2022, $ 2,300,000 in 2023, $ 2,000,000 in 2024, $ 1,400,000 in 2025, and $ 1,400,000 in 2026.   The weighted amortization period of the intangible assets, in total, is 11.2 years. The weighted amortization period by intangible asset class is 10.0 years for Customer relationships and 20.0 years for Licenses & rights.   Goodwill             The carrying amounts of goodwill for the Food Service, Retail Supermarket and Frozen Beverage segments are as follows:       Food     Retail     Frozen             Service     Supermarket     Beverages     Total       (in thousands)   Balance at March 26, 2022   $ 61,189     $ 4,146     $ 56,498     $ 121,833                                     Balance at September 25, 2021   $ 61,189     $ 4,146     $ 56,498     $ 121,833       Note 11 We have classified our investment securities as marketable securities held to maturity and available for sale. The FASB defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the FASB has established three levels of inputs that may be used to measure fair value:   Level 1 Observable input such as quoted prices in active markets for identical assets or liabilities;   Level 2 Observable inputs, other than Level 1 inputs in active markets, that are observable either directly or indirectly; and   Level 3 Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.   19     Marketable securities held to maturity and available for sale consist primarily of investments in mutual funds, preferred stock, and corporate bonds.  The fair values of mutual funds are based on quoted market prices in active markets and are classified within Level 1 of the fair value hierarchy.  The fair values of preferred stock and corporate bonds are based on quoted prices for identical or similar instruments in markets that are not active.  As a result, preferred stock and corporate bonds are classified within Level 2 of the fair value hierarchy.    The amortized cost, unrealized gains and losses, and fair market values of our investment securities held to maturity at March 26, 2022 are summarized as follows:               Gross     Gross     Fair       Amortized     Unrealized     Unrealized     Market       Cost     Gains     Losses     Value       (in thousands)                                     Corporate bonds   $ 4,530     $ 2     $ 59     $ 4,473   Total marketable securities held to maturity   $ 4,530     $ 2     $ 59     $ 4,473     The amortized cost, unrealized gains and losses, and fair market values of our investment securities available for sale at March 26, 2022 are summarized as follows:               Gross     Gross     Fair       Amortized     Unrealized     Unrealized     Market       Cost     Gains     Losses     Value       (in thousands)                                     Mutual funds   $ 3,588     $ -     $ 549     $ 3,039   Preferred stock     2,816       96       -       2,912   Total marketable securities available for sale   $ 6,404     $ 96     $ 549     $ 5,951     The mutual funds seek current income with an emphasis on maintaining low volatility and overall moderate duration. The Fixed-to-Floating Perpetual Preferred Stock generate fixed income to call dates in 2025 and then income is based on a spread above LIBOR if the securities are not called. The mutual funds and Fixed-to-Floating Perpetual Preferred Stock do not have contractual maturities; however, we classify them as long-term assets as it is our intent to hold them for a period of over one year, although we may sell some or all of them depending on presently unanticipated needs for liquidity or market conditions. The corporate bonds generate fixed income to maturity dates in 2022 through 2023, with $ 4.5 million maturing within the next 12 months. Our expectation is that we will hold the corporate bonds to their maturity dates and redeem them at our amortized cost.   20     The amortized cost, unrealized gains and losses, and fair market values of our investment securities held to maturity at September 25, 2021 are summarized as follows:               Gross     Gross     Fair       Amortized     Unrealized     Unrealized     Market       Cost     Gains     Losses     Value       (in thousands)                                                                       Corporate bonds     12,027       123       18       12,132   Total marketable securities held to maturity   $ 12,027     $ 123     $ 18     $ 12,132     The amortized cost, unrealized gains and losses, and fair market values of our investment securities available for sale at September 25, 2021 are summarized as follows:               Gross     Gross     Fair       Amortized     Unrealized     Unrealized     Market       Cost     Gains     Losses     Value       (in thousands)                                     Mutual funds   $ 3,588     $ -     $ 536     $ 3,052   Preferred stock     6,892       175       35       7,032   Total marketable securities available for sale   $ 10,480     $ 175     $ 571     $ 10,084     The amortized cost and fair value of the Company’s held to maturity securities by contractual maturity at March 26, 2022 and September 25, 2021 are summarized as follows:       March 26, 2022     September 25, 2021                                                 Fair             Fair       Amortized     Market     Amortized     Market       Cost     Value     Cost     Value       (in thousands)                                     Due in one year or less   $ 4,530     $ 4,473     $ 7,980     $ 8,080   Due after one year through five years     -       -       4,047       4,052   Total held to maturity securities   $ 4,530     $ 4,473     $ 12,027     $ 12,132   Less current portion     4,530       4,473       7,980       8,080   Long term held to maturity securities   $ -     $ -     $ 4,047     $ 4,052     Proceeds from the redemption and sale of marketable securities were $ 4,326,000 and $ 11,526,000 in the three and six months ended March 26, 2022 and were $ 15,189,000 and $ 41,337,000 in the three and six months ended March 27, 2021, respectively. Losses of $ 25,000 and $ 69,000 were recorded in the three and six months ended March 26, 2022, and a gain of $ 41,000 and $ 119,000 were recorded in the three and six months ended March 27, 2021. Included in the gains and losses were unrealized losses of $ 58,000 and unrealized gains of $ 649,000 in the six months ended March 26, 2022 and March 27, 2021, respectively. Unrealized losses of $ 53,000 and $ 46,000 were recorded in the three months ended March 26, 2022, and March 27, 2021, respectively. We use the specific identification method to determine the cost of securities sold.   21     Total marketable securities held to maturity as of March 26, 2022, with credit ratings of BBB/BB/B had an amortized cost basis totaling $ 4,530,000 . This rating information was obtained March 31, 2022.     Note 12 Changes to the components of accumulated other comprehensive loss are as follows:       Three Months Ended     Six Months Ended       March 26, 2022     March 26, 2022                         Foreign Currency     Foreign Currency       Translation     Translation       Adjustments     Adjustments         (unaudited) (in thousands)       (unaudited) (in thousands)                     Beginning balance   $ ( 13,827 )   $ ( 13,383 )                   Other comprehensive income     546       102                     Ending balance   $ ( 13,281 )   $ ( 13,281 )         Three Months Ended     Six Months Ended       March 27, 2021     March 27, 2021                         Foreign Currency     Foreign Currency       Translation     Translation       Adjustments     Adjustments         (unaudited) (in thousands)       (unaudited) (in thousands)                     Beginning balance   $ ( 13,308 )   $ ( 15,587 )                   Other comprehensive (loss) income     ( 531 )     1,748                     Ending balance   $ ( 13,839 )   $ ( 13,839 )   22       Note 13 – Leases                                                                                    General Lease Description                                         We have operating leases with initial noncancelable lease terms in excess of one year covering the rental of various facilities and equipment. Certain of these leases contain renewal options and some provide options to purchase during the lease term. Our operating leases include leases for real estate for some of our office and manufacturing facilities as well as manufacturing and non-manufacturing equipment used in our business. The remaining lease terms for these operating leases range from  1  month to  13 years.                                                                                    We have finance leases with initial noncancelable lease terms in excess of one year covering the rental of various equipment. These leases are generally for manufacturing and non-manufacturing equipment used in our business. The remaining lease terms for these finance leases range from 1 year to  5  years.   Significant Assumptions and Judgments   Contract Contains a Lease                                                                          In evaluating our contracts to determine whether a contract is or contains a lease, we considered the following:                                                                   • Whether explicitly or implicitly identified assets have been deployed in the contract; and   • Whether we obtain substantially all of the economic benefits from the use of that underlying asset, and we can direct how and for what purpose the asset is used during the term of the contract.   Allocation of Consideration                                                                          In determining how to allocate consideration between lease and non-lease components in a contract that was deemed to contain a lease, we used judgment and consistent application of assumptions to reasonably allocate the consideration.                                                                                             Options to Extend or Terminate Leases                                                                          We have leases which contain options to extend or terminate the leases. On a lease-by-lease basis, we have determined if the extension should be considered reasonably certain to be exercised and thus a right-of-use asset and a lease liability should be recorded.                                                Discount Rate           The discount rate for leases, if not explicitly stated in the lease, is the incremental borrowing rate, which is the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.   23     We used the discount rate to calculate the present value of the lease liability at the date of adoption. In the development of the discount rate, we considered our incremental borrowing rate as provided by our lender which was based on cash collateral and credit risk specific to us, and our lease portfolio characteristics.                                                                                   As of  March 26, 2022, the weighted-average discount rate of our operating and finance leases was 3.3 % and 3.2 %, respectively. As of March 27, 2021, the weighted-average discount rate of our operating and finance leases was 3.3 % and 3.2 %, respectively.   Practical Expedients and Accounting Policy Elections   We elected the package of practical expedients that permits us not to reassess our prior conclusions about lease identification, lease classification and initial direct costs and made an accounting policy election to exclude short-term leases with an initial term of 12 months or less from our Consolidated Balance Sheets.                                                                                             24     Amounts Recognized in the Financial Statements The components of lease expense were as follows:       Three Months Ended     Three Months Ended     Six Months Ended     Six Months Ended       March 26, 2022     March 27, 2021     March 26, 2022     March 27, 2021       (in thousands)     (in thousands)     (in thousands)     (in thousands)                                     Operating lease cost in cost of goods sold and operating expenses   $ 3,922     $ 3,962     $ 7,920     $ 7,901   Finance lease cost:                                 Amortization of assets in cost of goods sold and operating expenses     50       78       122       154   Interest on lease liabilities in Interest expense & other     2       11       7       25   Total finance lease cost   $ 52     $ 89     $ 129     $ 179   Short-term lease cost in cost of goods sold and operating expenses     -       -       -       -   Total net lease cost   $ 3,974     $ 4,051     $ 8,049     $ 8,080     Supplemental balance sheet information related to leases is as follows:       March 26, 2022     September 25, 2021       (in thousands)     (in thousands)   Operating Leases                 Operating lease right-of-use assets   $ 53,892     $ 54,555                     Current operating lease liabilities   $ 13,747     $ 13,395   Noncurrent operating lease liabilities     45,501       46,557   Total operating lease liabilities   $ 59,248     $ 59,952                     Finance Leases                 Finance lease right-of-use assets in property, plant and equipment, net   $ -     $ 561                     Current finance lease liabilities   $ 127     $ 182   Noncurrent finance lease liabilities     336       392   Total finance lease liabilities   $ 463     $ 574     Supplemental cash flow information related to leases is as follows:       Three Months Ended     Three Months Ended     Six Months Ended     Six Months Ended       March 26, 2022     March 27, 2021     March 26, 2022     March 27, 2021       (in thousands)     (in thousands)     (in thousands)     (in thousands)   Cash paid for amounts included in the measurement of lease liabilities:                                 Operating cash flows from operating leases   $ 3,970     $ 4,001     $ 8,008     $ 7,987   Operating cash flows from finance leases   $ 2     $ 87     $ 7     $ 173   Financing cash flows from finance leases   $ 37     $ 11     $ 111     $ 25                                     Supplemental noncash information on lease liabilities arising from obtaining right-of-use assets   $ 5,922     $ 578     $ 7,065     $ 1,354   Supplemental noncash information on lease liabilities removed due to purchase of leased asset   $ -     $ -     $ -     $ -     As of  March 26, 2022, the maturities of lease liabilities were as follows:       (in thousands)       Operating Leases     Finance Leases   Six months ending September 24, 2022   $ 7,924     $ 68   2023     14,304       136   2024     11,663       136   2025     8,266       65   2026     5,354       39   Thereafter     18,419       33   Total minimum payments   $ 65,930     $ 477   Less amount representing interest     ( 6,682 )     ( 14 ) Present value of lease obligations   $ 59,248     $ 463     25         Note 14 We have related party expenses for distribution and shipping related costs with NFI Industries, Inc. Our director, Sidney R. Brown, is CEO of NFI Industries, Inc. The Company paid $ 2,871,000 and $ 3,980,000 to NFI in the three and six months ended March 26, 2022 and paid $ 96,000 and $ 96,000 through the three and six months ended March 27, 2021. The agreements with NFI include terms that are consistent with those that we believe would have been negotiated at an arm’s length with an independent party. As of March 26, 2022 our consolidated balance sheet included related party trade payables of approximately $ 424,000 . We had no related party trade payable balance as of September 25, 2021.     Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   Statements made in this Form 10-Q that are not historical or current facts are “forward-looking statements” made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 (the “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 harbors 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.     Liquidity and Capital Resources   Our current cash and cash equivalents balances, investments and cash expected to be provided by future operations are our primary sources of liquidity. We believe that these sources, along with our borrowing capacity, are sufficient to fund future growth and expansion. See Note 11 to these financial statements for a discussion of our investment securities.   The Company’s Board of Directors declared a regular quarterly cash dividend of $0.633 per share of its common stock payable on April 12, 2022, to shareholders of record as of the close of business on March 22, 2022.   26     On August 4, 2017 the Company’s Board of Directors authorized the purchase and retirement of 500,000 shares of the Company’s common stock; 318,858 shares remain to be purchased under this authorization. We did not purchase any shares of our common stock in the six months ended March 26, 2022, nor did we purchase any shares of our common stock in fiscal year 2021.   In the three months ended March 26, 2022 and March 27, 2021, fluctuations in the valuation of the Mexican and Canadian currencies and the resulting translation of the net assets of our Mexican and Canadian subsidiaries caused a decrease of $546,000 and an increase of $531,000 in accumulated other comprehensive loss, respectively. In the six months ended March 26, 2022 and March 27, 2021, fluctuations in the valuation of the Mexican and Canadian currencies and the resulting translation of the net assets of our Mexican and Canadian subsidiaries caused a decrease of $102,000 and $1,748,000 in accumulated other comprehensive loss, respectively.   In December 2021, we entered into an amendment and modification to an amended and restated loan agreement with our existing banks which provides for up to a $50,000,000 revolving credit facility repayable in December 2026. The agreement contains restrictive covenants and requires commitment fees in accordance with standard banking practice. There were no outstanding balances under this facility at March 26, 2022 or at September 25, 2021.   Critical Accounting Policies, Judgments and Estimates   There have been no material changes to our critical accounting policies, judgments and estimates from the information provided in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies, Judgments and Estimates, in our Annual Report on Form 10-K for the year ended September 25, 2021, as filed with the SEC on November 23, 2021.   RESULTS OF OPERATIONS   Net sales increased by 10% to $281,513,000 in the second quarter and by 21% to $600,003,000 for the six months ended March 26, 2022 compared to the three and six months ended March 27, 2021, respectively. Net sales in our fiscal second quarter were negatively impacted by unexpected challenges related to our early February implementation of a new enterprise resource planning (“ERP”) system. We experienced operational and supply chain challenges due to this implementation and estimated that these issues resulted in a negative, one-time impact, on fiscal second quarter sales of approximately $20 million, all within our Food Service and Retail segments.   27     FOOD SERVICE   Sales to food service customers increased by 4% in the second quarter to $176,340,000 and by 18% to $388,072,000 for the six months, compared to respective prior year periods. Sales were up across most product lines as many of the venues and locations where our products are sold that were previously shut down or operating at reduced capacity in the first and second quarters of 2021 have partially or fully re-opened in the first and second quarters of 2022. Customer venues including theaters, stadiums, amusement parks, schools, restaurants and strategic accounts continued to experience an increase in foot traffic and visitation, which helped drive strong sales in our core products.   Soft pretzel sales to the food service market increased by 18% to $43,261,000 in the second quarter and by 35% to $93,682,000 in the six months compared to respective prior year periods. Frozen novelties sales decreased by 31% to $7,305,000 in the second quarter and decreased by 7% to $15,762,000 in the six months compared to respective prior year periods. Churro sales to food service customers increased by 19% to 17,447,000 in the second quarter and increased by 41% to $36,936,000 in the six months compared to respective prior year periods. Sales of bakery products increased by 1% in the second quarter to $83,967,000 and increased 12% to $191,798,000 for the six months compared to respective prior year periods. Sales of handhelds increased 3% in the second quarter to $20,506,000 and by 4% to $39,001,000 in the six months compared to respective prior year periods.   Sales of new products in the first twelve months since their introduction were approximately $2,000,000 in the second quarter and $4,000,000 in the six months, driven primarily by new bakery items, including a new empanada product with a major convenience customer. Price increases had a marginal impact on sales in the quarter and were somewhat offset by the volume decreases attributable to the negative impacts associated with the ERP implementation.   Compared to prior year, operating income in our Food Service segment decreased by 91% to $536,000 in the second quarter and by 22% to $9,537,000 in the six months reflecting the significant increase in ingredients, production and shipping costs as well as the impacts related to our ERP implementation.   RETAIL SUPERMARKETS   Compared to prior year, sales of products to retail supermarkets decreased by 7% to $40,757,000 in the second quarter and increased by 1% to $83,452,000 in the six months. Our SUPERPRETZEL brand has performed well helping to drive an 8% increase in sales of soft pretzels in the six months to $31,946,000 despite sales in the second quarter remaining relatively flat due to the impacts related to our ERP implementation. Sales of frozen novelties decreased by 2% to $18,919,000 in the second quarter, but increased by 6% to $36,721,000 in the six months compared to respective prior year periods. Sales of biscuits decreased by 12% to $5,687,000 in the second quarter and by 1% to $13,958,000 in the six months compared to respective prior year periods. Handheld sales to retail supermarket customers decreased by 52% to $1,069,000 in the second quarter and by 53% to $2,345,000 in the six months compared to respective prior year periods.   28     Sales of new products were approximately $500,000 for the three and six months ended, and were primarily related to frozen novelty items. Price increases had a minimal impact on sales in the second quarter and in the six months, and this increase was more than offset by the volume decreases attributable to the negative impacts associated with the ERP implementation.   Compared to prior year periods, operating income in our Retail Supermarkets segment decreased by 83% to $1,091,000 in the second quarter and by 45% to $6,075,000 in the six months. The decreases in operating income were primarily attributable to higher cost of goods sold as well as the impacts related to our ERP implementation.            FROZEN BEVERAGES   Compared to prior year periods, frozen beverage and related product sales increased by 50% to $64,416,000 in the second quarter and by 52% to $128,479,000 in the six months. Beverage related sales increased by 91% to $35,365,000 in the second quarter and by 101% to $69,128,000 in the six months compared to respective prior year periods. Gallon sales were up 88% in the quarter and up 98% in the six months compared to respective prior year periods. The increase in gallon sales reflects the growing momentum across theaters, amusement parks, convenience, and restaurant channels. In the amusement parks channel, we continue to see strong growth as visitation numbers continue to exceed pre-Covid levels. Service revenue increased by 15% to $21,000,000 in the second quarter and by 16% to $43,011,000 in the six months, compared to respective prior year periods, led by an acceleration in maintenance calls and additional growth in one of our larger customers. Machines revenue (primarily sales of frozen beverage machines) increased by 33% to $7,542,000 in the second quarter and by 27% to $15,389,000 in the six months, compared to respective prior year periods, driven mainly by growth from large quick service restaurant (QSR) and convenience customers.   Our Frozen Beverage segment had operating income of $2,461,000 in the second quarter compared with an operating loss of $5,189,000 in the prior year second quarter. In the six months, our Frozen Beverage segment had operating income of $3,321,000 compared with an operating loss of $15,514,000 in the prior year six-month period. The comparative performance was primarily a result of higher beverage sales volume which drove leverage across the business.   CONSOLIDATED   Gross profit as a percentage of sales was 23.2% in the three-month period this year and 23.8% last year.  Gross profit as a percentage of sales was 24.1% in the six-month period this year and 22.3% last year. Inflation continued to build over the quarter and six-month period which has significantly pressured margins. The impact was especially pronounced in key raw material purchases like flour, eggs, dairy, chocolates and meats, as well as packaging and fuel. We have pricing and cost initiatives in place to offset these cost pressures, though we do not expect to see most of the benefits on gross profit until later in the fiscal year.   Total operating expenses increased by 14% to $61,260,000 in the second quarter and by 22% to $125,790,000 in the six months compared to respective prior year periods. As a percentage of net sales, operating expenses increased from 20.9% to 21.8% in the second quarter and from 20.8% to 21.0% in the six months.   29     Marketing expenses remained flat at 7.5% of net sales in the second quarter and decreased to 7.0% in the six months compared with 7.3% in prior year’s six-month period. Distribution expenses increased to 10.1% of net sales in the second quarter from 9.9% in the prior year and to 10.3% in the six months compared with 9.7% in prior year’s six-month period. Administrative expenses increased to 4.2% of net sales in the second quarter from 3.6% in prior year but decreased to 3.7% in the six months compared with 3.8% in prior year’s six-month period.   Compared to prior year, operating income decreased by 43% to $4,088,000 in the second quarter but increased by 142% to $18,933,000 in the six months as a result of the aforementioned items.   Our investments generated before tax income of $160,000 in the second quarter, a $419,000 decrease over prior year. In the six months, our investments generated before tax income of $431,000, a 78% decrease from the prior year period. The decrease in before tax investment income compared with prior year was primarily due to decreases in the amount of investments.   Compared to prior year, net earnings decreased by 46% to $3,271,000 in the second quarter but increased by 83% to $14,362,000 in the six months. Our effective tax rate was 26% in the six months compared with 20% in the prior year’s six- month period, as prior year’s six-month period effective tax rate was favorably impacted by tax benefits related to share-based compensation. Our effective tax rate was 22% in the second quarter and was also 22% in the prior year second quarter, as both were favorably impacted by the tax benefits related to share-based compensation.   There are many factors which can impact our net earnings from year to year and in the long run, among which are the supply and cost of raw materials and labor, insurance costs, factors impacting sales as noted above, the continuing consolidation of our customers, our ability to manage our manufacturing, marketing and distribution activities, our ability to make and integrate acquisitions and changes in tax laws and interest rates.   Item 3. Quantitative and Qualitative Disclosures About Market Risk   There has been no material change in the Company’s assessment of its sensitivity to market risk since its presentation set forth, in item 7a. “Quantitative and Qualitative Disclosures About Market Risk,” in its 2021 annual report on Form 10-K filed with the SEC.   Item 4. Controls and Procedures   The Chief Executive Officer and the Chief Financial Officer of the Company (its principal executive officer and principal financial officer, respectively) have concluded, based on their evaluation as of March 26, 2022, 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 26, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.   30     PART II. OTHER INFORMATION   Item 6. Exhibits   Exhibit No.     31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.     31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.     32.1 Certification Pursuant to the 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.     32.2 Certification Pursuant to the 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.       101.1 The following financial information from J&J Snack Foods Corp.'s Quarterly Report on Form 10-Q for the quarter ended March 26, 2022, formatted in inline XBRL (extensible Business Reporting Language): (i)   Consolidated Balance Sheets, (ii)  Consolidated Statements of Earnings, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Cash Flows and (v)  the Notes to the Consolidated Financial Statements         104 Cover Page Interactive Data File (formatted as Inline XBRL and containing in Exhibit 101)   31     SIGNATURES     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.   J & J SNACK FOODS CORP.                Dated: May 5, 2022   /s/ Dan Fachner       Dan Fachner       President and Chief Executive Officer       (Principal Executive Officer)       Dated: May 5, 2022   /s/ Ken A. Plunk       Ken A. Plunk, Senior Vice       President and Chief Financial Officer       (Principal Financial Officer)       (Principal Accounting Officer)     32