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 ~~December~~March 2425, ~~2022~~2023

☐	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

☐

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

☐

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

☒

AsAt ofMay ~~January 31~~1, 2023 there were 19,~~229~~252,~~330~~ 281 shares of the Registrant’s Common Stock outstanding.

INDEX

	Page Number	~~Page Number~~
Part I.	Financial Information
Part I. Financial Information
Item l.	Consolidated Financial Statements
Item l. Consolidated Financial Statements
Consolidated Balance Sheets – December 24, 2022 (unaudited) and September 24, 2022		3
Consolidated Balance Sheets – March 25, 2023 (unaudited) and September 24, 2022	3
Consolidated Statements of Earnings (unaudited) – Three Months Ended December 24, 2022 and December 25, 2021		4
Consolidated Statements of Earnings (unaudited) - Three and Six Months Ended March 25, 2023 and March 26, 2022	4
Consolidated Statements of Comprehensive Income (unaudited) – Three Months Ended December 24, 2022 and December 25, 2021		5
Consolidated Statements of Comprehensive Income (unaudited) – Three and Six Months Ended March 25, 2023 and March 26, 2022	5
Consolidated Statements of Changes In Stockholders’ Equity (unaudited) – Three Months Ended December 24, 2022 and December 25, 2021		6
Consolidated Statements of Changes In Stockholders’ Equity (unaudited) – Three and Six Months Ended March 25, 2023 and March 26, 2022	6
Consolidated Statements of Cash Flows (unaudited) – Three Months Ended December 24, 2022 and December 25, 2021		7
Consolidated Statements of Cash Flows (unaudited) – Three and Six Months Ended March 25, 2023 and March 26, 2022	7
Notes to the Consolidated Financial Statements (unaudited)	8	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 3. Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	35
Item 4. Controls and Procedures	32
Part II.	Other Information
Part II. Other Information
Item 6.	Exhibits	35
Item 6. Exhibits	33

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

J & J SNACK FOODS CORP. AND SUBSIDIARIES ~~CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts)~~

	December 24,
	2022			September 24,
	(unaudited)			2022
Assets
Current assets
Cash and cash equivalents	$	54,866		$	35,181
Marketable securities held to maturity		2,008			4,011
Accounts receivable, net		187,321			208,178
Inventories		182,642			180,473
Prepaid expenses and other		14,473			16,794
Total current assets		441,310			444,637
Property, plant and equipment, at cost
Land		3,714			3,714
Buildings		34,232			34,232
Plant machinery and equipment		384,749			374,566
Marketing equipment		280,172			274,904
Transportation equipment		12,306			11,685
Office equipment		46,073			45,865
Improvements		49,544			49,331
Construction in progress		80,453			65,753
Total Property, plant and equipment, at cost		891,243			860,050
Less accumulated depreciation and amortization		537,873			524,683
Property, plant and equipment, net		353,370			335,367
Other assets
Goodwill		184,420			184,420
Other intangible assets, net		190,027			191,732
Marketable securities available for sale		4,371			5,708
Operating lease right-of-use assets		50,063			51,137
Other		3,987			3,965
Total other assets		432,868			436,962
Total Assets	$	1,227,548		$	1,216,966
Liabilities and Stockholders' Equity
Current Liabilities
Current finance lease liabilities	$	128		$	124
Accounts payable		91,610			108,146
Accrued insurance liability		16,014			15,678
Accrued liabilities		9,642			9,214
Current operating lease liabilities		13,219			13,524
Accrued compensation expense		16,104			21,700
Dividends payable		13,461			13,453
Total current liabilities		160,178			181,839
Long-term debt		92,000			55,000
Noncurrent finance lease liabilities		303			254
Noncurrent operating lease liabilities		41,883			42,660
Deferred income taxes		69,873			70,407
Other long-term liabilities		3,575			3,637
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 19,229,000 and 19,219,000 respectively		96,550			94,026
Accumulated other comprehensive loss		(12,842	)		(13,713	)
Retained Earnings		776,028			782,856
Total stockholders' equity		859,736			863,169
Total Liabilities and Stockholders' Equity	$	1,227,548		$	1,216,966

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

	March 25,
	2023			September 24,
	(unaudited)			2022
Assets
Current assets
Cash and cash equivalents	$	43,283		$	35,181
Marketable securities held to maturity		-			4,011
Accounts receivable, net		198,442			208,178
Inventories		180,721			180,473
Prepaid expenses and other		12,062			16,794
Total current assets		434,508			444,637

Property, plant and equipment, at cost
Land		3,714			3,714
Buildings		34,232			34,232
Plant machinery and equipment		396,522			374,566
Marketing equipment		284,509			274,904
Transportation equipment		13,244			11,685
Office equipment		46,355			45,865
Improvements		49,733			49,331
Construction in progress		79,808			65,753
Total Property, plant and equipment, at cost		908,117			860,050
Less accumulated depreciation and amortization		550,000			524,683
Property, plant and equipment, net		358,117			335,367

Other assets
Goodwill		185,070			184,420
Other intangible assets, net		188,347			191,732
Marketable securities available for sale		4,429			5,708
Operating lease right-of-use assets		50,252			51,137
Other		4,234			3,965
Total other assets		432,332			436,962
Total Assets	$	1,224,957		$	1,216,966

Liabilities and Stockholders' Equity
Current Liabilities
Current finance lease liabilities	$	226		$	124
Accounts payable		85,507			108,146
Accrued insurance liability		16,831			15,678
Accrued liabilities		10,448			9,214
Current operating lease liabilities		13,507			13,524
Accrued compensation expense		19,117			21,700
Dividends payable		13,475			13,453
Total current liabilities		159,111			181,839

Long-term debt		92,000			55,000
Noncurrent finance lease liabilities		702			254
Noncurrent operating lease liabilities		41,642			42,660
Deferred income taxes		69,602			70,407
Other long-term liabilities		3,613			3,637

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 19,252,000 and 19,219,000 respectively		100,637			94,026
Accumulated other comprehensive loss		(11,774	)		(13,713	)
Retained Earnings		769,424			782,856
Total stockholders' equity		858,287			863,169
Total Liabilities and Stockholders' Equity	$	1,224,957		$	1,216,966

The accompanying notes are an integral part of these statements.

J & J SNACK FOODS CORP. AND SUBSIDIARIES ~~CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) (in thousands, except per share amounts)~~

	Three months ended
	December 24,			December 25,
	2022			2021
Net Sales	$	351,343		$	318,490
Cost of goods sold		260,488			239,115
Gross Profit		90,855			79,375
Operating expenses
Marketing		23,699			20,907
Distribution		42,049			33,315
Administrative		16,391			10,369
Other general (income)		(612	)		(61	)
Total Operating Expenses		81,527			64,530
Operating Income		9,328			14,845
Other income (expense)
Investment income		685			271
Interest expense		(1,049	)		(18	)
Earnings before income taxes		8,964			15,098
Income tax expense		2,331			4,007
NET EARNINGS	$	6,633		$	11,091
Earnings per diluted share	$	0.34		$	0.58
Weighted average number of diluted shares		19,274			19,153
Earnings per basic share	$	0.35		$	0.58
Weighted average number of basic shares		19,222			19,085

CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)
(in thousands, except per share amounts)

	Three months ended						Six months ended
	March 25,			March 26,			March 25,			March 26,
	2023			2022			2023			2022

Net sales	$	337,854		$	281,513		$	689,197		$	600,003

Cost of goods sold		247,470			216,165			507,958			455,280
Gross profit		90,384			65,348			181,239			144,723

Operating expenses
Marketing		24,017			21,036			47,716			41,943
Distribution		38,188			28,349			80,237			61,664
Administrative		17,919			11,719			34,310			22,088
Other general expense		67			156			(545	)		95
Total operating expenses		80,191			61,260			161,718			125,790

Operating income		10,193			4,088			19,521			18,933

Other income (expense)
Investment income		401			160			1,086			431
Interest expense		(1,334	)		(57	)		(2,383	)		(75	)

Earnings before income taxes		9,260			4,191			18,224			19,289

Income tax expense		2,389			920			4,720			4,927

NET EARNINGS	$	6,871		$	3,271		$	13,504		$	14,362

Earnings per diluted share	$	0.36		$	0.17		$	0.70		$	0.75

Weighted average number of diluted shares		19,295			19,206			19,285			19,180

Earnings per basic share	$	0.36		$	0.17		$	0.70		$	0.75

Weighted average number of basic shares		19,238			19,134			19,230			19,110

The accompanying notes are an integral part of these statements.

J&J SNACK FOODS CORP. AND SUBSIDIARIES ~~CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (in thousands)~~

	Three months ended
	December 24,		December 25,
	2022		2021
Net Earnings	$	6,633	$	11,091
Foreign currency translation adjustments		871		(444	)
Total Other Comprehensive Income (Loss)		871		(444	)
Comprehensive Income	$	7,504	$	10,647

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(in thousands)

	Three months ended				Six months Ended
	March 25,		March 26,		March 25,		March 26,
	2023		2022		2023		2022

Net earnings	$	6,871	$	3,271	$	13,504	$	14,362

Foreign currency translation adjustments		1,068		546		1,939		102
Total other comprehensive income, net of tax		1,068		546		1,939		102

Comprehensive income	$	7,939	$	3,817	$	15,443	$	14,464

The accompanying notes are an integral part of these statements.

J & J SNACK FOODS CORP. AND SUBSIDIARIES ~~CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (in thousands)~~

					Accumulated
					Other
	Common Stock				Comprehensive			Retained
	Shares		Amount		Loss			Earnings			Total
Balance as September 24, 2022		19,219	$	94,026	$	(13,713	)	$	782,856		$	863,169
Issuance of common stock upon exercise of stock options		10		1,285		-			-			1,285
Foreign currency translation adjustment		-		-		871			-			871
Dividends declared		-		-		-			(13,461	)		(13,461	)
Share-based compensation		-		1,239		-			-			1,239
Net earnings		-		-		-			6,633			6,633
Balance at December 24, 2022		19,229	$	96,550	$	(12,842	)	$	776,028		$	859,736

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

					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

(in thousands)

					Accumulated
					Other
	Common Stock				Comprehensive			Retained
	Shares		Amount		Loss			Earnings			Total

Balance as September 24, 2022		19,219	$	94,026	$	(13,713	)	$	782,856		$	863,169

Issuance of common stock upon exercise of stock options		10		1,285		-			-			1,285
Foreign currency translation adjustment		-		-		871			-			871
Dividends declared		-		-		-			(13,461	)		(13,461	)
Share-based compensation		-		1,239		-			-			1,239
Net earnings		-		-		-			6,633			6,633
Balance at December 24, 2022		19,229	$	96,550	$	(12,842	)	$	776,028		$	859,736

Issuance of common stock upon exercise of stock options		14		1,713		-			-			1,713
Issuance of common stock for employee stock purchase plan		9		1,061		-			-			1,061
Foreign currency translation adjustment		-		-		1,068			-			1,068
Dividends declared		-		-		-			(13,475	)		(13,475	)
Share-based compensation		-		1,313		-			-			1,313
Net earnings		-		-		-			6,871			6,871
Balance at March 25, 2023		19,252	$	100,637	$	(11,774	)	$	769,424		$	858,287

					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

The accompanying notes are an integral part of these statements.

J & J SNACK FOODS CORP. AND SUBSIDIARIES ~~CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)~~

	Three months ended
	December 24,			December 25,
	2022			2021
Operating activities:
Net earnings	$	6,633		$	11,091
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation of fixed assets		13,476			11,923
Amortization of intangibles and deferred costs		1,705			588
Gains from disposals of property & equipment		(711	)		(27	)
Share-based compensation		1,239			1,083
Deferred income taxes		(526	)		(529	)
Loss on marketable securities		37			44
Other		(18	)		(4	)
Changes in assets and liabilities, net of effects from purchase of companies
Decrease in accounts receivable		21,171			231
(Increase) in inventories		(2,284	)		(9,958	)
Decrease in prepaid expenses		2,343			719
(Decrease) in accounts payable and accrued liabilities		(21,655	)		(9,707	)
Net cash provided by operating activities		21,410			5,454
Investing activities:
Purchases of property, plant and equipment		(30,910	)		(16,100	)
Proceeds from redemption and sales of marketable securities		3,300			7,200
Proceeds from disposal of property and equipment		729			231
Net cash used in investing activities		(26,881	)		(8,669	)
Financing activities:
Proceeds from issuance of stock		1,285			706
Borrowings under credit facility		72,000			-
Repayment of borrowings under credit facility		(35,000	)		-
Payments on finance lease obligations		(39	)		(74	)
Payment of cash dividends		(13,453	)		(12,080	)
Net cash provided by (used in) financing activities		24,793			(11,448	)
Effect of exchange rates on cash and cash equivalents		363			(69	)
Net increase (decrease) in cash and cash equivalents		19,685			(14,732	)
Cash and cash equivalents at beginning of period		35,181			283,192
Cash and cash equivalents at end of period	$	54,866		$	268,460

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (in thousands)

	Six months ended
	March 25,			March 26,
	2023			2022
Operating activities:
Net earnings	$	13,504		$	14,362
Adjustments to reconcile net earnings to net cash provided by operating activities
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
Decrease (increase) in accounts receivable		10,541			(25,031	)
Decrease (increase) in inventories		823			(36,538	)
Decrease (increase) in prepaid expenses		4,787			(4,308	)
(Decrease) in accounts payable and accrued liabilities		(25,739	)		(2,055	)
Net cash provided by (used in) operating activities		35,671			(26,435	)

Investing activities:
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	)

Financing activities:
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 dividend		(26,914	)		(24,163	)
Net cash provided by (used in) financing activities		14,074			(12,533	)

Effect of exchange rates on cash and cash equivalents		1,384			(16	)

Net increase (decrease) in cash and cash equivalents		8,102			(62,175	)
Cash and cash equivalents at beginning of period		35,181			283,192
Cash and cash equivalents at end of period	$	43,283		$	221,017

The accompanying notes are an integral part of these statements.

J & J SNACK FOODS CORP. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1 Basis of Presentation 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 24, 2022.

InThe accompanying unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the ~~opinion~~United ofStates ~~management,~~for interim financial information and with the ~~accompanying~~instructions ~~unaudited~~to ~~consolidated~~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. ~~contain~~However, ~~all~~except ~~adjustments~~as ~~(consisting~~disclosed ofherein, ~~only~~there ~~normal~~has ~~recurring~~been ~~adjustments)~~no ~~necessary~~material change in the information disclosed in the Notes to ~~present~~Consolidated ~~fairly~~Financial Statements included in the Company’s ~~financial~~Annual ~~position~~Report ~~and~~on ~~the~~Form ~~results~~10-K offor ~~operations~~the ~~and~~year ~~cash~~ended ~~flows~~September 24, 2022.

~~The~~In ~~results of operations for~~ the ~~three~~opinion ~~months~~of ~~ended December 24~~management, ~~2022~~the ~~and~~accompanying ~~December~~unaudited ~~25,~~consolidated ~~2021~~financial ~~are~~statements ~~not~~contain ~~necessarily~~all ~~indicative~~adjustments of(consisting ~~results for the full year. Sales~~ of ~~our~~only ~~frozen~~normal ~~beverages~~recurring ~~and~~adjustments) ~~frozen~~necessary ~~novelties~~to ~~are~~present ~~generally~~fairly ~~higher in~~ the ~~fiscal~~financial ~~third~~position and ~~fourth~~the ~~quarters~~results ~~due~~of tooperations ~~warmer~~and ~~weather~~cash flows.

The results of operations for the three and six months ended March 25, 2023 and March 26, 2022 are not necessarily indicative of results for the full year. Sales of our frozen beverages and frozen novelties are generally higher in the fiscal third and fourth quarters due to warmer weather.

While we believe that the disclosures presented are adequate to make the information not misleading, it is suggested that these consolidated financial statements be read in conjunction with the audited consolidated financial statements and the notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 24, 2022.

Note 2 Business Combinations On June 21, 2022, J & J Snack Foods Corp. and its wholly-owned subsidiary, DD Acquisition Holdings, LLC, completed the acquisition of one hundred percent (100%) of the equity interests of Dippin’ Dots Holding, L.L.C. (“Dippin’ Dots”) which, through its wholly-owned subsidiaries, owns and operates the Dippin’ Dots and Doc Popcorn businesses. The purchase price was approximately $223.6 million, consisting entirely of cash, and may be modified for certain customary post-closing purchase price adjustments.

On June 21, 2022, J & J Snack Foods Corp. and its wholly-owned subsidiary, DD Acquisition Holdings, LLC, completed the acquisition of one hundred percent (100%) of the equity interests of Dippin’ Dots Holding, L.L.C. (“Dippin’ Dots”) which, through its wholly-owned subsidiaries, owns and operates the Dippin’ Dots and Doc Popcorn businesses. The purchase price was approximately $223.6 million, consisting entirely of cash, and may be modified for certain customary post-closing purchase price adjustments.

Dippin’ Dots is a leading producer of flash-frozen beaded ice cream treats, and the acquisition will leverage synergies in entertainment and amusement locations, theaters, and convenience to continue to expand our business. The acquisition also includes the Doc Popcorn business operated by Dippin’ Dots.

The financial results of Dippin’ Dots have been included in our consolidated financial statements since the date of the acquisition. Sales and net earnings (loss) of Dippin’ Dots were $1316.40 million and ($0.72) million for the three months ended ~~December~~March 2425, ~~2022~~2023 and $29.3 million and ($0.8) million for the six months ended March 25, 2023. Dippin’ Dots is reported as part of our Food Service segment.

Upon acquisition, the assets and liabilities of Dippin’ Dots were adjusted to their respective fair values as of the closing date of the transaction, including the identifiable intangible assets acquired. In addition, the excess of the purchase price over the fair value of the net assets acquired has been recorded as goodwill. The fair value estimates used in valuing certain acquired assets and liabilities are based, in part, on inputs that are unobservable. For intangible assets, these include, but are not limited to, forecasted future cash flows, revenue growth rates, attrition rates and discount rates.

The purchase price allocation as of the date of acquisition was based on a preliminary valuation and is subject to revision as more detailed analyses are completed and additional information about the fair value of assets acquired and liabilities assumed becomes available.

During the three months ended March 25, 2023, we recorded a measurement period adjustment to the estimated fair values initially recorded on June 21, 2022 which resulted in an increase in Other Current Liabilities of $0.7 million and an increase in Goodwill of $0.7 million. In fiscal year 2022, we previously recorded measurement period adjustments to the estimated fair values initially recorded on June 21, 2022, which resulted in an increase to Property, plant, and equipment, net of $6.5 million, and reductions in Goodwill, Identifiable intangible assets, and Inventories of $4.0 million, $2.2 million, and $0.3 million, respectively. The measurement period adjustments were recorded to better reflect market participant assumptions about facts and circumstances existing as of the acquisition date and did not have a material impact on our consolidated statement of income for the ~~year~~three ~~ended September 24~~months, ~~2022.~~or Nothe ~~measurement~~six ~~period~~months, ~~adjustments~~ended ~~were~~March ~~recorded~~25, ~~in fiscal year~~ 2023.

The major classes of assets and liabilities to which we have preliminarily allocated the purchase price were as follows:

Preliminary Dippin' Dots Purchase Price Allocation (1)

	Preliminary Value
	as of acquisition
	date (as previously		Measurement
	reported as of		Period
	June 25,2022)		Adjustment			As Adjusted
	June 25, 2022)		Adjustment			As Adjusted
	(in thousands)
Cash and cash equivalents	$	2,259				$	2,259
Accounts receivable, net		12,257					12,257
Inventories		8,812		(301	)		8,511
Prepaid expenses and other		1,215					1,215
Property, plant and equipment, net		24,622		6,548			31,170
Intangible assets		120,400		(2,200	)		118,200
Goodwill (2)		66,634		(43,~~047~~397	)		6263,~~587~~237
Operating lease right-of-use assets		3,514					3,514
Other noncurrent assets		243					243
Total assets acquired		239,956		-650			~~239~~240,~~956~~606
Liabilities assumed:
Current lease liabilities		619					619
Accounts payable		6,005					6,005
Other current liabilities		3,532		650			34,~~532~~182
Noncurrent lease liabilities		2,954					2,954
Other noncurrent liabilities		3,285					3,285
Total liabilities acquired		16,395		-650			1617,~~395~~045
Purchase price	$	223,561	$	-		$	223,561

(1) Due to the limited time since the date of the acquisition, the purchase price allocation remains preliminary. (2) Goodwill was assigned to our Food Services segment and was primarily attributed to the assembled workforce of the acquired business and to our expectations of favorable growth opportunities in entertainment and amusement locations, theaters, and convenience based on increased synergies that are expected to be achieved from the integration of Dippin’ Dots.

(2) Goodwill was assigned to our Food Services segment and was primarily attributed to the assembled workforce of the acquired business and to our expectations of favorable growth opportunities in entertainment and amusement locations, theaters, and convenience based on increased synergies that are expected to be achieved from the integration of Dippin’ Dots.

Acquired Intangible Assets

			(in thousands)
	Weighted average		June 21,
	life (years)		2022
			(in thousands)
Amortizable
Trade name	indefinite		$	76,900
Developed technology		10		22,900
Customer relationships		10		9,900
Franchise agreements		10		8,500
Total acquired intangible assets			$	118,200

Dippin' Dots Results Included in the Company's Consolidated Results

	Three months ended			Six months ended
	December 24,
	March 25,			March 25,
	2022
	2023			2023
	(in thousands)			(in thousands)
Net sales	$	1315,~~378~~967		$	29,345
Net earnings (loss)	$	(~~667~~163	)	$	(830	)

109

Note 3

Revenue Recognition

We recognize revenue in accordance with ASC 606, “Revenue from Contracts with Customers.”

When Performance Obligations Are Satisfied

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account for revenue recognition. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

The singular performance obligation of our customer contracts for product and machine sales is determined by each individual purchase order and the respective products ordered, with revenue being recognized at a point-in-time when the obligation under the terms of the agreement is satisfied and product control is transferred to our customer. Specifically, control transfers to our customers when the product is delivered to, installed or picked up by our customers based upon applicable shipping terms, as our customers can direct the use and obtain substantially all of the remaining benefits from the product at this point in time. The performance obligations in our customer contracts for product are generally satisfied within 30 days.

The singular performance obligation of our customer contracts for time and material repair and maintenance equipment service is the performance of the repair and maintenance with revenue being recognized at a point-in-time when the repair and maintenance is completed.

The singular performance obligation of our customer repair and maintenance equipment service contracts is the performance of the repair and maintenance with revenue being recognized over the time the service is expected to be performed. Our customers are billed for service contracts in advance of performance and therefore we have contract liability on our balance sheet.

Significant Payment Terms

In general, within our customer contracts, the purchase order identifies the product, quantity, price, pick-up allowances, payment terms and final delivery terms. Although some payment terms may be more extended, presently the majority of our payment terms are 30 days. As a result, we have used the available practical expedient and, consequently, do not adjust our revenues for the effects of a significant financing component.

Shipping

All amounts billed to customers related to shipping and handling are classified as revenues; therefore, we recognize revenue for shipping and handling fees at the time the products are shipped or when services are performed. The cost of shipping products to the customer is recognized at the time the products are shipped to the customer and our policy is to classify them as Distribution expenses.

Variable Consideration

In addition to fixed contract consideration, our contracts include some form of variable consideration, including sales discounts, trade promotions and certain other sales and consumer incentives, including rebates and coupon redemptions. In general, variable consideration is treated as a reduction in revenue when the related revenue is recognized. Depending on the specific type of variable consideration, we use the most likely amount method to determine the variable consideration. We believe there will be no significant changes to our estimates of variable consideration when any related uncertainties are resolved with our customers. We review and update our estimates and related accruals of variable consideration each period based on historical experience. Our recorded liability for allowances, end-user pricing adjustments and trade spending was ~~approximately~~ $1213.18 million at ~~December~~March 2425, ~~2022~~2023 and $14.7 million at September 24, 2022.

Warranties & Returns

We provide all customers with a standard or assurance type warranty. Either stated or implied, we provide assurance the related products will comply with all agreed-upon specifications and other warranties provided under the law. No services beyond an assurance warranty are provided to our customers.

We do not grant a general right of return. However, customers may return defective or non-conforming products. Customer remedies may include either a cash refund or an exchange of the product. We do not estimate a right of return and related refund liability as returns of our products are rare.

Contract Balances

Our customers are billed for service contracts in advance of performance and therefore we have contract liability on our balance sheet as follows:

	Three months ended						Six months ended
	December 24,			December 25,
	March 25,			March 26,			March 25,			March 26,
	2022			2021
	2023			2022			2023			2022
	(in thousands)						(in thousands)
Beginning Balance	$	4,926		$	1,097
Beginning balance	$	4,767		$	1,030		$	4,926		$	1,097
Additions to contract liability		1,~~390~~527			1,~~199~~374			2,917			2,573
Amounts recognized as revenue		(1,~~549~~465	)		(1,~~266~~312	)		(3,014	)		(2,578	)
Ending Balance	$	4,767		$	1,030
Ending balance	$	4,829		$	1,092		$	4,829		$	1,092

Disaggregation of Revenue

See Note 11 for disaggregation of our net sales by class of similar product and type of customer.

Allowance for Doubtful Receivables

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 $2.3 million and $2.2 million on ~~December~~March 2425, ~~2022~~2023 and September 24, 2022, respectively.

Note 4 Depreciation and Amortization Expense 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, franchise agreements, technology 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 $13.5 million and $11~~.9 million for the three months ended December 24, 2022 and December 25, 2021, respectively.~~

13Note 4 Depreciation and Amortization Expense

~~Note~~Depreciation 5of ~~Earnings~~equipment ~~per~~and ~~Share~~buildings ~~Basic~~is ~~earnings~~provided ~~per~~for ~~common~~by ~~share~~the ~~(EPS)~~straight-line ~~excludes~~method ~~dilution~~over ~~and~~the isassets’ ~~computed~~estimated byuseful ~~dividing~~lives. ~~income~~Amortization ~~available~~of toimprovements ~~common~~is ~~shareholders~~provided for by the ~~weighted~~straight-line ~~average~~method ~~common~~over ~~shares~~the ~~outstanding~~term ~~during~~of the ~~period.~~lease ~~Diluted~~or ~~EPS~~the ~~takes~~assets’ ~~into~~estimated ~~consideration~~useful ~~the~~lives, ~~potential~~whichever ~~dilution~~is ~~that~~shorter. ~~could~~Licenses ~~occur~~and ifrights, ~~securities~~customer ~~(stock~~relationships, ~~options~~franchise agreements, technology and ~~restricted~~non-compete ~~stock~~agreements ~~units~~arising ~~(“RSU”)’s)~~from oracquisitions ~~other~~are ~~contracts~~amortized by the straight-line method over periods ranging from 2 to ~~issue~~20 ~~common~~years. ~~stock~~Depreciation ~~were~~expense ~~exercised~~was $13.8 million and ~~converted~~$11.9 ~~into~~million ~~common~~for ~~stock~~the three months ended March 25, 2023 and March 26, 2022, respectively and $27.2 million ~~Our~~and ~~calculation~~$23.9 ofmillion ~~EPS~~for isthe assix ~~follows:~~months ended March 25, 2023 and March 26, 2022, respectively.

	Three months ended December 24, 2022
	Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount
	(in thousands, except per share amounts)
Basic EPS
Net Earnings available to common stockholders	$	6,633		19,222	$	0.35
Effect of Dilutive Securities
RSU’s and Options		-		52		(0.01	)
Diluted EPS
Net Earnings available to common stockholders plus assumed conversions	$	6,633		19,274	$	0.34

Note 5

Earnings per Share

~~394,077~~Basic ~~anti-dilutive~~earnings ~~shares~~per ~~have~~common ~~been~~share ~~excluded~~(EPS) inexcludes dilution and is computed by dividing income available to common shareholders by the ~~computation~~weighted ofaverage common shares outstanding during the period. Diluted EPS ~~for~~takes into consideration the ~~three~~potential ~~months~~dilution ~~ended~~that ~~December~~could ~~24,~~occur ~~2022~~if securities (stock options and restricted stock units (“RSU”)’s) or other contracts to issue common stock were exercised and converted into common stock. Our calculation of EPS is as follows:

	Three months ended December 25, 2021
	Three months ended March 25, 2023
	Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount
	(in thousands, except per share amounts)
Basic EPS
Net Earnings available to common stockholders	$	11,091		19,085	$	0.58
Net earnings available to common stockholders	$	6,871		19,238	$	0.36
Effect of Dilutive Securities
Effect of dilutive securities
RSU’s and Options		-		68		-
RSU's and options		-		57		-
Diluted EPS
Net Earnings available to common stockholders plus assumed conversions	$	11,091		19,153	$	0.58
Net earnings available to common stockholders plus assumed conversions	$	6,871		19,295	$	0.36

~~318~~381,~~172~~735 anti-dilutive shares have been excluded in the computation of EPS for the three months ended ~~December~~March 25, ~~2021~~2023.

Note 6 Share-Based Compensation and Post-Retirement Benefits At December 24, 2022, the Company has three stock-based employee compensation plans. Share-based compensation expense was recognized as follows:

	Six months ended March 25, 2023
	Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount
	(in thousands, except per share amounts)
Basic EPS
Net earnings available to common stockholders	$	13,504		19,230	$	0.70

Effect of dilutive securities
RSU's and options		-		55		-

Diluted EPS
Net earnings available to common stockholders plus assumed conversions	$	13,504		19,285	$	0.70

	Three months ended
	December 24,		December 25,
	2022		2021
	(in thousands)
Stock options	$	620	$	814
Stock purchase plan		227		60
Stock issued to an outside director		-		11
Service share units issued to employees		181		72
Performance share units issued to employees		72		39
Total share-based compensation	$	1,100	$	996
The above compensation is net of tax benefits	$	139	$	87

386,510 anti-dilutive shares have been excluded in the computation of EPS for the six months ended March 25, 2023.

	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
RSU's and 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
RSU's and 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.

Note 6

Share-Based Compensation and Post-Retirement Benefits

At March 25, 2023, the Company has three stock-based employee compensation plans. Share-based compensation expense was recognized as follows:

	Three months ended				Six months ended
	March 25,		March 26,		March 25,		March 26,
	2023		2022		2023		2022
	(in thousands)				(in thousands)

Stock options	$	559	$	586	$	1,179	$	1,400
Stock purchase plan		197		90		424		150
Stock issued to outside directors		27		11		27		22
Service share units issued to employees		193		152		374		224
Performance share units issued to employees		171		82		243		121
Total share-based compensation	$	1,147	$	921	$	2,247	$	1,917

The above compensation is net of tax benefits	$	166	$	346	$	305	$	433

The fair value of each option grant is estimated on the date of grant using the Black-Scholes options-pricing model.

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.

The Company did not grant any stock options during the ~~three~~six months ended ~~December~~March 2425, ~~2022~~2023 or during the ~~three~~six months ended ~~December~~March 2526, ~~2021~~2022.

During the ~~three~~six months ended ~~December~~March 2425, ~~2022~~2023, the Company issued 9,900 service share units (“RSU”)’s. Each RSU entitles the awardee to one share of common stock upon vesting. During the ~~three~~six months ended ~~December~~March 2526, ~~2021~~2022, the Company issued 8,873 ~~service share units (“~~RSU”)’s. The fair value of the 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 25, 2023 or March 26, 2022.

During the ~~three~~six months ended ~~December~~March 2425, ~~2022~~2023, the Company also issued 18,641 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. During the ~~three~~six months ended ~~December~~March 2526, ~~2021~~2022, the Company issued 8,868 ~~performance~~PSU’s. ~~share~~No ~~units~~such (“PSU”)’s were issued in the three months ended March 25, 2023 or March 26, 2022.

Note 7

Income Taxes

We account for our income taxes under the liability method. Under the liability method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates that will be in effect when these differences reverse. Deferred tax expense is the result of changes in deferred tax assets and liabilities.

Additionally, we recognize a liability for income taxes and associated penalties and interest for tax positions taken or expected to be taken in a tax return which are more likely than not to be overturned by taxing authorities (“uncertain tax positions”). We have not recognized a tax benefit in our financial statements for these uncertain tax positions.

15The total amount of gross unrecognized tax benefits is $0.3 million on both March 25, 2023 and September 24, 2022, 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 25, 2023, and September 24, 2022, the Company has $0.3 million of accrued interest and penalties, respectively.

The total amount of gross unrecognized tax benefits is $0.3 million on both December 24, 2022 and September 24, 2022, 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 December 24, 2022 and September 24, 2022, the Company has $0.3 million of accrued interest and penalties, respectively.

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 was 25.8% for the three months ended ~~December~~March 2425, ~~2022~~2023, ~~was~~as ~~26%~~compared with 21.9% ~~Our~~in ~~effective~~the ~~tax~~prior ~~rate~~year ~~was~~period, ~~27%~~with the increase due to the impact of stock-based compensation expense in ~~last~~the ~~fiscal~~prior year’s ~~quarter~~period.

Our effective tax rate was 25.9% for the six months ended March 25, 2023, as compared with 25.5% in the prior year period.

Note 8

New Accounting Pronouncements and Policies

In ~~June~~December ~~2016~~2022, the FASB issued ASU ~~2016~~No. 2022-1306, ~~Measurement~~"Reference Rate Reform (Topic 848): Deferral of ~~Credit~~the ~~Losses~~Sunset Date of Topic 848", to provide optional guidance to temporarily ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on ~~Financial~~financial ~~Instruments~~reporting. Preceding the issuance of ASU 2020-04, which ~~changes~~established ASC 848, the ~~impairment~~United ~~model~~Kingdom's ~~used~~Financial Conduct Authority ("FCA") announced that it would no longer need to ~~measure~~persuade ~~credit~~or ~~losses~~compel ~~for~~banks ~~most~~to ~~financial~~submit ~~assets~~to LIBOR after December 31, 2021. WeIn ~~are~~response, ~~required~~the toFASB ~~recognize~~established anDecember ~~allowance~~31, ~~that~~2022 ~~reflects~~as the ~~Company’s~~expiration ~~current~~date ~~estimate~~for ASC 848. In March 2021, the FCA announced the intended cessation date of ~~credit~~the ~~losses~~overnight ~~expected~~1-, to3-, 6-, and 12-month USD LIBOR would be ~~incurred~~June ~~over~~30, 2023. Because the ~~life~~current relief in Topic 848 may not cover a period of time during which a significant number of modifications may take place, this update deferred the ~~financial~~sunset ~~asset~~date in Topic 848 from December 31, ~~including~~2022, ~~trade~~to ~~receivables~~December ~~and~~31, ~~held-~~2024, after which entities will no longer be permitted to~~-maturity~~ ~~debt~~apply ~~securities~~the relief in Topic 848. This guidance is not expected to have a material impact on our consolidated financial statements and disclosures.

~~The~~In ~~Company~~September ~~adopted~~2022, ~~this~~the FASB issued ASU No. 2022-04 “Liabilities – Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations”. This guidance requires annual and interim disclosures for entities that use supplier finance programs in ~~the~~connection ~~first~~with ~~quarter~~the purchase of ~~Fiscal~~goods ~~2021~~and ~~using~~services. These amendments are effective for fiscal years beginning after December 15, 2022, except for the ~~modified~~amendment ~~retrospective~~on ~~transition~~rollforward ~~method.~~information, ~~The~~which ~~adoption~~is ofeffective ~~ASU~~for ~~2016-13~~fiscal ~~did~~years ~~not~~beginning ~~have~~after aDecember ~~material~~15, 2023. We are currently assessing the impact onof the ~~Company’s~~guidance ~~Consolidated~~on ~~Financial~~our ~~Statements~~consolidated financial statements and disclosures.

Note 9

Long-Term Debt

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 December 24, 2022, the Company is in compliance with all financial covenants terms of the Credit Agreement.14

16The 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 terms 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 ~~December~~March 2425, ~~2022~~2023, $92.0 million was outstanding under the Amended Credit Agreement with a weighted average interest rate of 45.8450%. These borrowings have been classified as Long-Term Debt on the Company’s Balance Sheet. As of ~~December~~March 2425, ~~2022~~2023, the amount available under the Amended Credit Agreement was $123.2 million, after giving effect to the outstanding letters of credit. As of September 24, 2022, $55.0 million was outstanding balances under the ~~Amended~~ Credit Agreement. As of September 24, 2022, the amount available under the Amended Agreement was $160.2 million, after giving effect to the outstanding letters of credit.

Note 10

Inventory

Inventories consist of the following:

	December 24,		September 24
	March 25,		September 24,
	2022		2022
	2023		2022
	(unaudited)
	(in thousands)
Finished goods	$	8693,~~459~~409	$	86,464
Raw materials		4335,~~883~~142		41,505
Packaging materials		1714,~~033~~610		16,637
Equipment parts and other		3537,~~267~~560		35,867
Total Inventories	$	182,642	$	180,473
Total inventories	$	180,721	$	180,473

Note 11

Segment Information

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 ~~below~~above which is available to our Chief Operating Decision Maker.

Our 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 or for take-away.

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, DOGSTERS, 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.

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 25,			March 26,			March 25,			March 26,
	2023			2022			2023			2022
	(unaudited)						(unaudited)
	(in thousands)						(in thousands)
Sales to external customers:
Food Service
Soft pretzels	$	55,492		$	43,261		$	107,715		$	93,682
Frozen novelties		26,607			7,305			48,372			15,762
Churros		24,920			17,447			50,677			36,936
Handhelds		20,309			20,506			43,881			39,001
Bakery		85,300			83,967			194,248			191,798
Other		5,653			3,854			11,685			10,893
Total Food Service	$	218,281		$	176,340		$	456,578		$	388,072

Retail Supermarket
Soft pretzels	$	16,013		$	15,752		$	30,498		$	31,946
Frozen novelties		20,770			18,919			38,739			36,721
Biscuits		5,858			5,687			13,771			13,958
Handhelds		4,099			1,069			6,991			2,345
Coupon redemption		(375	)		(726	)		(551	)		(1,622	)
Other		(5	)		56			(15	)		104
Total Retail Supermarket	$	46,360		$	40,757		$	89,433		$	83,452

Frozen Beverages
Beverages	$	41,799		$	35,365		$	80,458		$	69,128
Repair and maintenance service		22,585			21,000			46,412			43,011
Machines revenue		8,252			7,542			15,263			15,389
Other		577			509			1,053			951
Total Frozen Beverages	$	73,213		$	64,416		$	143,186		$	128,479

Consolidated sales	$	337,854		$	281,513		$	689,197		$	600,003

Depreciation and amortization:
Food Service	$	9,597		$	6,670		$	19,055		$	13,339
Retail Supermarket		492			386			883			752
Frozen Beverages		5,351			5,484			10,683			10,960
Total depreciation and amortization	$	15,440		$	12,540		$	30,621		$	25,051

Operating Income:
Food Service	$	5,133		$	536		$	11,520		$	9,537
Retail Supermarket		487			1,091			1,598			6,075
Frozen Beverages		4,573			2,461			6,403			3,321
Total operating income	$	10,193		$	4,088		$	19,521		$	18,933

Capital expenditures:
Food Service	$	13,744		$	13,851		$	38,606		$	24,084
Retail Supermarket		105			1,094			1,479			3,623
Frozen Beverages		4,365			4,261			9,039			7,599
Total capital expenditures	$	18,214		$	19,206		$	49,124		$	35,306

Assets:
Food Service	$	910,573		$	799,710		$	910,573		$	799,710
Retail Supermarket		12,162			33,206			12,162			33,206
Frozen Beverages		302,222			290,412			302,222			290,412
Total assets	$	1,224,957		$	1,123,328		$	1,224,957		$	1,123,328

	Three months ended
	December 24,			December 25,
	2022			2021
	(unaudited)
	(in thousands)
Sales to External Customers:
Food Service
Soft pretzels	$	52,223		$	50,421
Frozen novelties		21,765			8,457
Churros		25,757			19,489
Handhelds		23,572			18,495
Bakery		108,948			107,831
Other		6,032			7,039
Total Food Service	$	238,297		$	211,732
Retail Supermarket
Soft pretzels	$	14,485		$	16,194
Frozen novelties		17,969			17,802
Biscuits		7,913			8,271
Handhelds		2,892			1,276
Coupon redemption		(176	)		(896	)
Other		(10	)		48
Total Retail Supermarket	$	43,073		$	42,695
Frozen Beverages
Beverages	$	38,659		$	33,763
Repair and maintenance service		23,827			22,011
Machines revenue		7,011			7,847
Other		476			442
Total Frozen Beverages	$	69,973		$	64,063
Consolidated Sales	$	351,343		$	318,490
Depreciation and Amortization:
Food Service	$	9,458		$	6,669
Retail Supermarket		391			366
Frozen Beverages		5,332			5,476
Total Depreciation and Amortization	$	15,181		$	12,511
Operating Income :
Food Service	$	6,387		$	9,001
Retail Supermarket		1,111			4,984
Frozen Beverages		1,830			860
Total Operating Income	$	9,328		$	14,845
Capital Expenditures:
Food Service	$	24,862		$	10,233
Retail Supermarket		1,374			2,529
Frozen Beverages		4,674			3,338
Total Capital Expenditures	$	30,910		$	16,100
Assets:
Food Service	$	907,736		$	794,819
Retail Supermarket		16,941			29,802
Frozen Beverages		302,871			287,285
Total Assets	$	1,227,548		$	1,111,906

Note 12

Goodwill and Intangible Assets

Our 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 Beverages segments as of ~~December~~March 2425, ~~2022~~2023 and September 24, 2022 are as follows:

	December 24, 2022				September 24, 2022
	March 25, 2023				September 24, 2022
	Gross				Gross
	Carrying		Accumulated		Carrying		Accumulated
	Amount		Amortization		Amount		Amortization
	(in thousands)
FOOD SERVICE
Indefinite lived intangible assets
Trade names	$	85,872	$	-	$	85,872	$	-
Amortized intangible assets
Non-compete agreements		-		-		670		670
Franchise agreements		8,500		~~425~~638		8,500		212
Customer relationships		22,900		89,~~418~~044		22,900		7,790
Technology		23,110		1,~~162~~735		23,110		576
License and rights		1,690		1,~~502~~523		1,690		1,481
TOTAL FOOD SERVICE	$	142,072	$	1112,~~507~~940	$	142,742	$	10,729
RETAIL SUPERMARKETS
Indefinite lived intangible assets
Trade names	$	11,938	$	-	$	11,938	$	-
Amortized Intangible Assets
Amortized intangible Assets
Trade names		-		-		649		649
Customer relationships		7,688		6,~~678~~871		7,907		6,693
TOTAL RETAIL SUPERMARKETS	$	19,626	$	6,~~678~~871	$	20,494	$	7,342
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		~~581~~617		1,439		545
Licenses and rights		1,400		1,~~159~~177		1,400		1,142
TOTAL FROZEN BEVERAGES	$	48,254	$	1,~~740~~794	$	48,254	$	1,687
CONSOLIDATED	$	209,952	$	1921,~~925~~605	$	211,490	$	19,758

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 ~~December~~March 2425, ~~2022~~2023 and ~~December~~March 2526, ~~2021~~2022 was $1.7 million and $0.6 million, respectively. Aggregate amortization expense of intangible assets for the six months ended March 25, 2023 and March 26, 2022 was $3.4 million and $1.2 million, respectively.

20Estimated amortization expense for the next five fiscal years is approximately $3.3 million in 2023 (excluding the six months ended March 25, 2023), $6.2 million in 2024, $5.6 million in 2025, and 2026, and $4.6 million in 2027.

Estimated amortization expense for the next five fiscal years is approximately $4.9 million in 2023 (excluding the three months ended December 24, 2022), $6.2 million in 2024, $5.6 million in 2025 and 2026, and $4.6 million in 2027.

The weighted amortization period of the intangible assets, in total, is 10.4 years. The weighted amortization period by intangible asset class is 10 years for Technology, 10 years for Customer relationships, 20 years for Licenses & rights, and 10 years for Franchise agreements.

Goodwill

The carrying amounts of goodwill for the Food Service, Retail Supermarket and Frozen ~~Beverages~~Beverage segments are as follows:

	Food		Retail		Frozen
	Service		Supermarket		Beverages		Total
			(in thousands)
December 24, 2022	$	123,776	$	4,146	$	56,498	$	184,420
September 24, 2022	$	123,776	$	4,146	$	56,498	$	184,420

Goodwill and Intangible Assets

	Food		Retail		Frozen
	Service		Supermarket		Beverages		Total
			(in thousands)

March 25, 2023	$	124,426	$	4,146	$	56,498	$	185,070

September 24, 2022	$	123,776	$	4,146	$	56,498	$	184,420

Note 13

Investments

We have classified our investment securities as marketable securities held to maturity and available for sale. The FASB defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the FASB has established three levels of inputs that may be used to measure fair value:

Level 1

Observable input such as quoted prices in active markets for identical assets or liabilities;

Level 2

Observable inputs, other than Level 1 inputs in active markets, that are observable either directly or indirectly; and

Level 3

Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.

Marketable securities held to maturity and available for sale consist primarily of investments in mutual funds, preferred stock, and corporate bonds. The fair values of mutual funds are based on quoted market prices in active markets and are classified within Level 1 of the fair value hierarchy. The fair values of preferred stock, and corporate bonds ~~and certificates of deposit~~ are based on quoted prices for identical or similar instruments in markets that are not active. As a result, preferred stock, and corporate bonds ~~and certificates of deposit~~ are classified within Level 2 of the fair value hierarchy.

21As of March 25, 2023, the Company held no held to maturity investment securities.

~~The amortized cost, unrealized gains and losses, and fair market values of our investment securities held to maturity at December 24, 2022 are summarized as follows:~~18

			Gross		Gross		Fair
	Amortized		Unrealized		Unrealized		Market
	Cost		Gains		Losses		Value
	(in thousands)
Corporate Bonds		2,008		-		10		1,998
Total marketable securities held to maturity	$	2,008	$	-	$	10	$	1,998

The amortized cost, unrealized gains and losses, and fair market values of our investment securities available for sale at March 25, 2023 are summarized as follows:

The amortized cost, unrealized gains and losses, and fair market values of our investment securities available for sale at December 24, 2022 are summarized as follows:

			Gross		Gross		Fair
	Amortized		Unrealized		Unrealized		Market
	Cost		Gains		Losses		Value
	(in thousands)

Mutual funds	$	3,588	$	-	$	739	$	2,849
Preferred stock		1,519		61		-		1,580
Total marketable securities available for sale	$	5,107	$	61	$	739	$	4,429

			Gross		Gross		Fair
	Amortized		Unrealized		Unrealized		Market
	Cost		Gains		Losses		Value
	(in thousands)
Mutual Funds	$	3,588	$	-	$	774	$	2,814
Preferred Stock		1,519		38		-		1,557
Total marketable securities available for sale	$	5,107	$	38	$	774	$	4,371

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 amortized cost, unrealized gains and losses, and fair market values of our investment securities held to maturity at September 24, 2022 are summarized as follows:

			Gross		Gross		Fair
	Amortized		Unrealized		Unrealized		Market
	Cost		Gains		Losses		Value
	(in thousands)
Corporate Bonds		4,011		-		21		3,990
Corporate bonds		4,011		-		21		3,990
Total marketable securities held to maturity	$	4,011	$	-	$	21	$	3,990

The amortized cost, unrealized gains and losses, and fair market values of our investment securities available for sale at September 24, 2022 are summarized as follows:

			Gross		Gross		Fair
	Amortized		Unrealized		Unrealized		Market
	Cost		Gains		Losses		Value
	(in thousands)
Mutual Funds	$	3,588	$	-	$	742	$	2,846
Mutual funds	$	3,588	$	-	$	742	$	2,846
Preferred Stock		2,816		46		-		2,862
Preferred stock		2,816		46		-		2,862
Total marketable securities available for sale	$	6,404	$	46	$	742	$	5,708

~~The amortized cost and fair value of the Company’s held to maturity securities by contractual maturity at December 24, 2022 and September 24, 2022 are summarized as follows:~~19

	December 24, 2022				September 24, 2022
			Fair				Fair
	Amortized		Market		Amortized		Market
	Cost		Value		Cost		Value
	(in thousands)
Due in one year or less	$	2,008	$	1,998	$	4,011	$	3,990
Due after one year through five years		-		-		-		-
Due after five years through ten years		-		-		-		-
Total held to maturity securities	$	2,008	$	1,998	$	4,011	$	3,990
Less current portion		2,008		1,998		4,011		3,990
Long term held to maturity securities	$	-	$	-	$	-	$	-

The amortized cost and fair value of the Company’s held to maturity securities by contractual maturity at March 25, 2023 and September 24, 2022 are summarized as follows:

Proceeds from the redemption and sale of marketable securities were $3.3 million in the three months ended December 24, 2022, and $7.2 million in the three months ended December 25, 2021, respectively. Losses of $37,000 and $44,000 were recorded in the three months ended December 24, 2022 and December 25, 2021, respectively, which included unrealized losses on marketable securities of $39,000 and $5,000 in the three months ended December 24, 2022 and December 25, 2021, respectively. We use the specific identification method to determine the cost of securities sold.

	March 25, 2023				September 24, 2022

			Fair				Fair
	Amortized		Market		Amortized		Market
	Cost		Value		Cost		Value
	(in thousands)

Due in one year or less	$	-	$	-	$	4,011	$	3,990
Due after one year through five years		-		-		-		-
Due after five years through ten years		-		-		-		-
Total held to maturity securities	$	-	$	-	$	4,011	$	3,990
Less current portion		-		-		4,011		3,990
Long term held to maturity securities	$	-	$	-	$	-	$	-

~~Total~~Proceeds from the redemption and sale of marketable securities ~~held~~were to$2.0 ~~maturity~~million asand of$5.3 ~~December~~million 24in the three and six months ended March 25, 2023 and were $4.3 million and $11.5 million in the three and six months ended March 26, 2022, ~~with~~respectively. ~~credit~~Gains ~~ratings~~of $59,000 and $22,000 were recorded in the three and six months ended March 25, 2023, and losses of ~~BBB/BB/B~~$25,000 ~~had~~and $69,000 were recorded in the three and six months ended March 26, 2022. Included in the gains and losses were an ~~amortized~~unrealized ~~cost~~gain ~~basis~~of ~~totaling~~$19,000 and an unrealized loss of $~~2.0~~58,000 ~~million~~in the six months ended March 25, 2023 and March 26, 2022, respectively. ~~This~~An ~~rating~~unrealized ~~information~~gain ~~was~~of ~~obtained~~$59,000 onand ~~December~~an 31unrealized loss of $53,000 were recorded in the three months ended March 25, 2023, and March 26, 2022, respectively. We use the specific identification method to determine the cost of securities sold.

Note 14

Accumulated Other Comprehensive Income (Loss)

Changes to the components of accumulated other comprehensive loss are as follows:

	Three months ended			Six months ended
	December 24, 2022
	March 25, 2023			March 25, 2023
	Foreign Currency
	(in thousands)			(in thousands)
	Translation Adjustments
	Foreign Currency			Foreign Currency
	(unaudited)
	Translation Adjustments			Translation Adjustments
	(in thousands)
Beginning balance	$	(12,842	)	$	(13,713	)
Beginning Balance	$	(13,713	)
Other comprehensive income		1,068			1,939
Other comprehensive income (loss)		871
Ending balance	$	(11,774	)	$	(11,774	)
Ending Balance	$	(12,842	)

	Three months ended
	Three Months ended			Six months ended
	December 25, 2021
	March 26, 2022			March 26, 2022
	Foreign Currency
	(in thousands)			(in thousands)
	Translation Adjustments
	Foreign Currency			Foreign Currency
	(unaudited)
	Translation Adjustments			Translation Adjustments
	(in thousands)
Beginning balance	$	(13,827	)	$	(13,383	)
Beginning Balance	$	(13,383	)
Other comprehensive income		546			102
Other comprehensive income (loss)		(444	)
Ending balance	$	(13,281	)	$	(13,281	)
Ending Balance	$	(13,827	)

Note 15

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 11month ~~month~~ to 12 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 56 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.

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 ~~December~~March 2425, ~~2022~~2023, the weighted-average discount rate of our operating and finance leases was 3.45% and 3.28%, respectively. As of September 24, 2022, 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.

2521

Amounts Recognized in the Financial Statements

The components of lease expense were as follows:

	Three months Ended		Three months Ended
	Three months ended March 25, 2023		Three months ended March 26, 2022		Six months ended March 25, 2023		Six months ended March 26, 2022
	December 24, 2022		December 25, 2021
Operating lease cost in Cost of goods sold and Operating Expenses	$	3,778	$	3,922	$	7,750	$	7,920
Operating lease cost in Cost of goods sold and Operating Expenses	$	3,972	$	1,458
Finance lease cost:
Finance lease cost:
Amortization of assets in Cost of goods sold and Operating Expenses	$	22	$	50	$	56	$	122
Amortization of assets in Cost of goods sold and Operating Expenses	$	34	$	72
Interest on lease liabilities in Interest expense & other		2		2		4		7
Interest on lease liabilities in Interest expense & other		2		5
Total finance lease cost	$	24	$	52	$	60	$	129
Total finance lease cost	$	36	$	77
Short-term lease cost in Cost of goods sold and Operating Expenses		-		-		-		-
Short-term lease cost in Cost of goods sold and Operating Expenses		-		-
Total net lease cost	$	3,802	$	3,974	$	7,810	$	8,049
Total net lease cost	$	4,008	$	1,535

Supplemental balance sheet information related to leases is as follows:

	December 24, 2022		September 24, 2022
	March 25, 2023		September 24, 2022
Operating Leases
Operating lease right-of-use assets	$	50,~~063~~252	$	51,137
Current operating lease liabilities	$	13,~~219~~507	$	13,524
Noncurrent operating lease liabilities		41,~~883~~642		42,660
Total operating lease liabilities	$	55,~~102~~149	$	56,184
Finance Leases
Finance lease right-of-use assets in Property, plant and equipment, net	$	~~395~~766	$	328
Current finance lease liabilities	$	~~128~~226	$	124
Noncurrent finance lease liabilities		~~303~~702		254
Total finance lease liabilities	$	~~431~~928	$	378

Supplemental cash flow information related to leases is as follows:

	Three months Ended		Three months Ended
	Three months ended		Three months ended		Six months ended		Six months ended
	December 24, 2022		December 25, 2021
	March 25, 2023		March 26, 2022		March 25, 2023		March 26, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	3,~~918~~861	$	13,~~534~~970	$	7,779	$	8,008
Operating cash flows from finance leases	$	2	$	52	$	4	$	7
Financing cash flows from finance leases	$	3932	$	7437	$	71	$	111
Supplemental noncash information on lease liabilities arising from obtaining right-of-use assets	$	23,~~676~~821	$	15,~~143~~922	$	6,497	$	7,065
Supplemental noncash information on lease liabilities removed due to purchase of leased asset	$	-	$	-	$	-	$	-

As of ~~December~~March 2425, ~~2022~~2023, the maturities of lease liabilities were as follows:

	Operating Leases			Finance Leases
Nine months ending September 30, 2023	$	13,095		$	142
Six months ending September 30, 2023	$	8,137		$	144
2024		1213,~~964~~794			~~133~~244
2025		910,~~488~~263			73189
2026		6,~~238~~998			59154
2027		5,~~256~~967			52153
Thereafter		15,~~546~~960			-137
Total minimum payments		6261,~~587~~119			~~397~~1,021
Less amount representing interest		(75,~~485~~970	)		(2893	)
Present value of lease obligations	$	55,~~102~~149		$	~~431~~928

As of ~~December~~March 2425, ~~2022~~2023 the weighted-average remaining term of our operating and finance leases was 5.87 years and 35.36 years, respectively. As of September 24, 2022, the weighted average remaining term of our operating and finance leases was 5.8 years and 3.3 years, respectively.

Note 16

Related Parties

We have related party expenses for distribution and shipping related costs with NFI Industries, Inc. Our director, Sidney R. Brown, is CEO and an owner of NFI Industries, Inc. InThe ~~the~~Company ~~three~~paid ~~months~~$13.3 ~~ended~~million ~~December~~and ~~24,~~$27.6 ~~2022~~million to NFI in the three and ~~December~~six months ended March 25, ~~2021,~~2023 ~~the~~and ~~Company~~ paid ~~NFI~~ $142.39 million and $14.30 million through the three and six months ended March 26, ~~respectively~~2022. Of the amounts paid to NFI, the amount related to management services performed by NFI was $0.12 million and $0.3 million in the three and six months ended ~~December~~March 2425, ~~2022~~2023, and $0.12 million and $0.3 in the three and six months ended ~~December~~March 2526, ~~2021~~2022. The remainder of the costs related to amounts that were passed through to the third-party distribution and shipping vendors that are being managed on the Company’s behalf by NFI. 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 ~~December~~March 2425, ~~2022~~2023 and September 24, 2022, our consolidated balance sheet included related party trade payables of approximately $42.08 million and $2.9 million, respectively.

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, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”~~, that involve substantial risks or uncertainties~~). These statements often can be identified by the use of terms such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” “~~projects~~approximate,” “~~seek,” “~~intend,” ~~“predict,” “approximate,”~~ or “continue,” or, ~~other similar references to future periods or~~ the negative thereof. ~~Statements addressing our future operating performance and statements addressing events and developments that we expect or anticipate will occur are also considered as forward-looking statements.~~ We intend that such forward-looking statements be subject to the safe ~~harbors~~of ~~for~~the ~~such~~Act ~~statements~~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.

~~RESULTS OF OPERATIONS – Three months ended December 24, 2022~~Objective

~~The~~This ~~following~~Management’s ~~discussion~~Discussion ~~provides~~and Analysis of Financial Condition and Results of Operations is intended to provide a ~~review~~reader of ~~results~~our ~~for~~financial statements with a narrative form from the ~~three~~perspective ~~months~~of ~~ended~~our ~~December~~management 24regarding our financial condition and results of operations, ~~2022~~liquidity asand ~~compared~~certain other factors that may affect our future results. The following discussion should be read in conjunction with the ~~three~~consolidated ~~months~~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 ~~December~~September 2524, ~~2021~~2022.

27Business Overview

Summary of Results	Three months ended
	December 24,			December 25,
	2022			2021			% Change
	(Unaudited) (in thousands)
Net Sales	$	351,343		$	318,490			10.3	%
Cost of goods sold		260,488			239,115			8.9	%
Gross Profit		90,855			79,375			14.5	%
Operating expenses
Marketing		23,699			20,907			13.4	%
Distribution		42,049			33,315			26.2	%
Administrative		16,391			10,369			58.1	%
Other general expense (income)		(612	)		(61	)		903.3	%
Total Operating Expenses		81,527			64,530			26.3	%
Operating Income		9,328			14,845			(37.2	)%
Other income (expense)
Investment income		685			271			152.8	%
Interest (expense)		(1,049	)		(18	)	n.m.
Earnings before income taxes		8,964			15,098			(40.6	)%
Income tax expense		2,331			4,007			(41.8	)%
NET EARNINGS	$	6,633		$	11,091			(40.2	)%

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,

Comparisons as a Percentage of Net Sales	Three months ended
	December 24,			December 25,
	2022			2021			Basis Pt Chg
Gross profit		25.9	%		24.9	%		100
Marketing		6.7	%		6.6	%		10
Distribution		12.0	%		10.5	%		150
Administrative		4.7	%		3.3	%		140
Operating income		2.7	%		4.7	%		(200	)
Earnings before income taxes		2.6	%		4.7	%		(210	)
Net earnings		1.9	%		3.5	%		(160	)

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.

Summary of Results	Three months ended							Six months ended
	March 25,			March 26,				March 25,			March 26,
	2023			2022			% Change	2023			2022			% Change
	(in thousands)							(in thousands)

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					Six months ended
	March 25,	March 26,	Basis Pt			March 25,	March 26,	Basis Pt
	2023	2022	Chg			2023	2022	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 $3256.93 million, or 1020.30%, to $~~351~~337.39 million for the three months ended ~~December~~March 2425, ~~2022~~2023. Net sales in the period included $1316.40 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 $1125.50 million, or 1438.53%, to $90.94 million for the three months ended ~~December~~March 2425, ~~2022~~2023. As a percentage of sales, gross profit increased from 2423.92% to 2526.98%. ~~Key~~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 209%. Three pricing actions implemented in fiscal 2022, along with anthe initial benefits of our operating initiatives, and improved ~~mix~~cost management and productivity, helped to offset the impact of the inflationary pressures noted above.

2824

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 $1718.09 million, or 2630.39%, to $8180.52 million for the three months ended ~~December~~March 2425, ~~2022~~2023. As a percentage of sales, operating expenses increased from 2021.38% to 23.27%, 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 10.51% to 1211.03%, reflecting inflationary pressures noted in fuel and outbound freight. As a percentage of sales, marketing expenses ~~remained~~decreased ~~relatively flat, increasing slightly~~ from 67.65% to 6.7.1%. As a percentage of sales, general and administrative expenses increased from 34.32% to 45.73%, ~~largely~~with ~~driven by~~ the ~~general~~increase ~~and~~largely ~~administrative~~attributable ~~expenses~~to ~~incurred~~the byimpact of Dippin’ Dots ~~in the three months ended December 24, 2022~~.

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 $0.42 million to $0.74 million ~~for~~and ~~the~~by ~~three months ended December 24, 2022~~$0.7 ~~The~~million ~~increase was primary due~~ to ~~the improving interest rate environment. Interest expense increased by~~ $1.01 million for the three months, and six months, ended ~~December~~March 2425, ~~2022~~2023, respectively. The increases were primary due to the ~~Company’s~~improving ~~outstanding~~interest ~~borrowings~~rate onenvironment ~~the~~in ~~Amended~~fiscal ~~Credit Agreement~~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 ~~decreased~~increased by $1.75 million, or 41159.87%, to $2.34 million for the three months ended ~~December~~March 2425, ~~2022~~2023. ~~This~~The ~~decrease~~effective ~~was~~tax ~~materially~~rate ~~consistent~~was ~~with~~25.8% ~~the~~as ~~overall~~compared 40with 21.69% ~~decrease~~ in ~~earnings~~the ~~before~~prior ~~income~~year ~~taxes.~~period, ~~The~~with ~~effective~~the ~~tax~~increase ~~rate~~due ~~was~~to ~~26.0% for~~ the ~~three~~impact ~~months~~of ~~ended~~tax ~~December~~benefits ~~24,~~on ~~2022~~stock-based ascompensation ~~compared~~expense ~~with 26.5%~~ 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 ~~decreased~~increased by $43.56 million, or 40110.21%, ~~to $6.6 million~~ for the three months ended ~~December~~March 2425, ~~2022~~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 ~~(loss)~~, which is how we measure segment profit.

	Three months ended					Six months ended
	March 25,		March 26,			March 25,		March 26,
	2023		2022		% Change	2023		2022		% Change
	(in thousands)					(in thousands)
Net Sales
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 %

	Three months ended							Six months ended
	December 24,		December 25,
	March 25,		March 26,					March 25,		March 26,
	2022		2021		% Change
	2023		2022		% Change			2023		2022		% Change
	(in thousands)							(in thousands)
Net Sales
Operating Income
Food Service	$	~~238~~5,~~297~~133	$	~~211,732~~536	857.6 %	~~12.5~~	%	$	11,520	$	9,537	20.8 %
Retail Supermarket		~~43,073~~487		421,~~695~~091	(55.4) %	~~0.9~~	%		1,598		6,075	(73.7) %
Frozen Beverages		694,~~973~~573		642,~~063~~461	85.8 %	~~9.2~~	%		6,403		3,321	92.8 %
Total Sales	$	351,343	$	318,490		10.3	%
Total Operating Income	$	10,193	$	4,088	149.3 %			$	19,521	$	18,933	3.1 %

	Three months ended
	December 24,		December 25,
	2022		2021		% Change
	(in thousands)
Operating Income
Food Service	$	6,387	$	9,001		(29.0	)%
Retail Supermarket		1,111		4,984		(77.7	)%
Frozen Beverages		1,830		860		112.8	%
Total Operating Income	$	9,328	$	14,845		(37.2	)%

Food Service Segment Results

	Three months ended							Six months ended
	December 24,		December 25,
	March 25,		March 26,					March 25,		March 26,
	2022		2021		% Change
	2023		2022		% Change			2023		2022		% Change
	(in thousands)							(in thousands)
Food Service Sales
Food Service Sales to External Customers
Soft pretzels	$	5255,~~223~~492	$	5043,~~421~~261	28.3 %	~~3.6~~	%	$	107,715	$	93,682	15.0 %
Frozen novelties		2126,~~765~~607		87,~~457~~305	264.2 %	~~157.4~~	%		48,372		15,762	206.9 %
Churros		2524,~~757~~920		1917,~~489~~447	42.8 %	~~32.2~~	%		50,677		36,936	37.2 %
Handhelds		2320,~~572~~309		1820,~~495~~506	(1.0) %	~~27.5~~	%		43,881		39,001	12.5 %
Bakery		~~108~~85,~~948~~300		~~107~~83,~~831~~967	1.6 %	~~1.0~~	%		194,248		191,798	1.3 %
Other		65,~~032~~653		73,~~039~~854	46.7 %	~~(14.3~~	)%		11,685		10,893	7.3 %
Total Food Service Sales	$	238,297	$	211,732		12.5	%
Total Food Service	$	218,281	$	176,340	23.8 %			$	456,578	$	388,072	17.7 %
Food Service Operating Income	$	65,~~387~~133	$	~~9,001~~536	857.6 %	~~(29.0~~	)%	$	11,520	$	9,537	20.8 %

~~Sales to food service customers increased $~~26.6 million, or 12.5%, to $238.3 million for the three months ended December 24, 2022, which included approximately $13.4 million in sales from Dippin’ Dots. Soft pretzels sales to food service increased 4% to $52.2 million. Frozen novelties sales increased 157% to $21.8 million, largely driven by Dippin’ Dots sales. Churro sales increased 32% to $25.8 million led by customer expansion and growing menu penetration, highlighted by the introduction of our Hola! Churros brand, as we achieved some of our slotting objectives with major distributors and gains at large regional quick service and fast casual restaurants. Sales of bakery products increase by 1% to $108.9 million. Sales of handhelds increased 28% to $23.6 million led by the continued success of a product developed for one of our larger wholesale club customers.

Sales ofto ~~new~~food ~~products~~service incustomers ~~the~~increased ~~first~~$41.9 ~~twelve~~million, or 24%, to $218.3 million for the three months ~~since~~ended ~~their~~March ~~introduction~~25, ~~were~~2023, ~~minimal~~which included approximately $16.0 million in ~~the~~sales ~~quarter~~from Dippin’ Dots. ~~Price~~Soft ~~increases~~pretzels ~~benefited~~sales ~~revenues~~to infood ~~the~~service ~~quarter~~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 ~~more~~growing ~~than~~menu ~~offset~~penetration. ~~some~~Sales ~~volume~~of ~~declines~~bakery ~~seen~~products inincreased ~~certain~~by ~~product~~2% ~~categories~~to $85.3 million. Sales of handhelds decreased by 1% to $20.3 million.

30Sales 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 ~~decreased~~increased $24.6 million in the quarter to $65.41 million, ~~which~~driven ~~reflected~~by ~~the~~stronger ~~significant~~sales ~~increase~~and inimproved ~~input,~~gross ~~production~~margin ~~and distribution costs~~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

	Three months ended									Six months ended
	December 24,			December 25,
	March 25,			March 26,						March 25,			March 26,
	2022			2021			% Change
	2023			2022			% Change			2023			2022			% Change
	(in thousands)									(in thousands)
Retail Supermarket Sales
Retail Supermarket Sales to External Customers
Soft pretzels	$	1416,~~485~~013		$	1615,~~194~~752		1.7 %	~~(10.6~~	)%	$	30,498		$	31,946		(4.5) %
Frozen novelties		1720,~~969~~770			1718,~~802~~919		9.8 %	~~0.9~~	%		38,739			36,721		5.5 %
Biscuits		75,~~913~~858			85,~~271~~687		3.0 %	~~(4.3~~	)%		13,771			13,958		(1.3) %
Handhelds		24,~~892~~099			1,~~276~~069		283.4 %	~~126.6~~	%		6,991			2,345		198.1 %
Coupon redemption		(~~176~~375	)		(~~896~~726	)	(48.3) %	~~(80.4~~	)%		(551	)		(1,622	)	(66.0) %
Other		(105	)		4856		(108.9) %	~~(120.8~~	)%		(15	)		104		(114.4) %
Total Retail Supermarket Sales	$	43,073		$	42,695			0.9	%
Total Retail Supermarket	$	46,360		$	40,757		13.7 %			$	89,433		$	83,452		7.2 %
Retail Supermarket Operating Income	$	~~1,111~~487		$	41,~~984~~091		(55.4) %	~~(77.7~~	)%	$	1,598		$	6,075		(73.7) %

Sales of products to retail customers increased $05.46 million, or 114%, to $4346.14 million for the three months ended ~~December~~March 2425, ~~2022~~2023. Soft pretzel sales ~~declined~~increased 112% to $1416.50 million, frozen novelties sales increase 110% to $1820.08 million, biscuit sales ~~declined~~increased 43% to $75.9 million, and handheld sales increased ~~127~~283% to $24.91 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. ~~Price~~Sales ~~increases~~in ~~benefited~~the ~~revenues~~quarter inbenefited from the ~~quarter~~impact ~~and~~of ~~helped~~the toprior ~~offset~~fiscal ~~volume~~year’s ~~declines~~price ~~seen~~increases, inalong ~~certain~~with ~~product~~modest ~~categories~~increases in volume.

~~Operating income in our Retail Supermarkets segment decreased $3.9 million in the quarter to $1.1 million driven by higher cost of goods sold and distribution related expenses.~~27

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

	Three months ended							Six months ended
	December 24,		December 25,
	March 25,		March 26,					March 25,		March 26,
	2022		2021		% Change
	2023		2022		% Change			2023		2022		% Change
	(in thousands)							(in thousands)
Frozen Beverages Sales
Frozen Beverages
Beverages	$	3841,~~659~~799	$	3335,~~763~~365	18.2 %	~~14.5~~	%	$	80,458	$	69,128	16.4 %
Repair and maintenance service		2322,~~827~~585		2221,~~011~~000	7.5 %	~~8.3~~	%		46,412		43,011	7.9 %
Machines revenue		78,~~011~~252		7,~~847~~542	9.4 %	~~(10.7~~	)%		15,263		15,389	(0.8) %
Other		~~476~~577		~~442~~509	13.4 %	~~7.7~~	%		1,053		951	10.7 %
Total Frozen Beverages Sales	$	69,973	$	64,063		9.2	%
Total Frozen Beverages	$	73,213	$	64,416	13.7 %			$	143,186	$	128,479	11.4 %
Frozen Beverages Operating Income	$	14,~~830~~573	$	~~860~~2,461	85.8 %	~~112.8~~	%	$	6,403	$	3,321	92.8 %

Frozen beverage and related product sales increased $58.9 8 million, or 914%, in the three months ended ~~December~~March 2425, ~~2022~~2023. Beverage related sales increased 1518% to $3841.78 million. Gallon sales were up 212% for the three months led by continued improving trends in travel, sporting events, concerts and amusement parks. ~~Sales remained strong even as volume at theaters declined in the quarter due to lower performing releases~~ and ~~weather-related impacts during the holiday season~~theater. Service revenue increased 8% to $2322.86 million ~~reflecting~~and ~~healthy~~machine ~~maintenance call volumes. Machine~~ revenue (primarily sales of frozen beverage machines) ~~decreased~~increased 119% to $78.03 million due to ~~the~~strong ~~timing of~~ customer ~~installations~~installation ~~between years~~volume.

Operating income in our Frozen Beverage segment increased $12.01 million in the quarter to $14.86 million, as strong sales drove leverage across the business.

31Frozen 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.

	Three months ended
	Six months ended
	December 24,			December 25,
	March 25,			March 26,
	2022			2021
	2023			2022
	(in thousands)
Cash flows from operating activities
Net earnings	$	613,~~633~~504		$	1114,~~091~~362
Non-cash items in net income:
Depreciation of fixed assets		1327,~~476~~236			1123,~~923~~868
Amortization of intangibles and deferred costs		13,~~705~~385			~~588~~1,183
Gains from disposals of property & equipment		(711	)		(27	)
(Gain) loss from disposals of property & equipment		(354	)		100
Share-based compensation		12,~~239~~552			12,~~083~~350
Deferred income taxes		(~~526~~787	)		(~~529~~251	)
Loss on marketable securities		37			44
(Gain) loss on marketable securities		(22	)		69
Other		(18255	)		(4184	)
Changes in assets and liabilities, net of effects from purchase of companies		(~~425~~9,588	)		(1867,~~715~~932	)
Net cash provided by operating activities	$	21,410		$	5,454
Net cash provided by (used in) operating activities	$	35,671		$	(26,435	)

● The increase in depreciation of fixed assets ~~over prior year period~~ 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 ~~over prior year period~~ was related to intangible assets acquired in the fiscal 2022 Dippin’ Dots acquisition.

● The $0.74 million gain from disposals of property & equipment ~~in the three months ended December 24, 2022~~ primarily related to the sale of a building.

● ~~Cash~~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, ~~were a net slight outflow~~ in the ~~three~~six months ended ~~December~~March 2425, ~~2022~~2023, ~~with~~was primarily driven by a decrease in accounts ~~receivable~~payable ~~largely~~and accrued liabilities of $25.7 million, offset somewhat by a $10.5 million decrease in accounts ~~payable~~receivable and ~~accrued~~a ~~liabilities~~$4.8 million decrease in prepaid expenses. In the prior year ~~period~~, the net $1867.79 million cash outflow was largely attributable to increases in inventory of $36.5 million and ~~decreases~~increases in accounts ~~payable~~receivable ~~and~~of ~~accrued~~$25.0 ~~liabilities~~million.

3229

	Three months ended
	Six months ended
	December 24,			December 25,
	March 25,			March 26,
	2022			2021
	2023			2022
	(in thousands)
Cash flows from investing activities
Purchases of property, plant and equipment	$	(3049,~~910~~124	)	$	(1635,~~100~~306	)
Proceeds from redemption and sales of marketable securities		35,300			711,~~200~~526
Proceeds from disposal of property and equipment		~~729~~797			~~231~~589
Net cash used in investing activities	$	(2643,~~881~~027	)	$	(823,~~669~~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 ~~over prior year period~~ 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 ~~from prior year period~~ was due to a strategic decision ~~in prior years~~ to no longer re-invest redeemed proceeds into marketable securities given the low interest rate environment ~~that existed in those years~~.

	Three months ended
	Six months ended
	December 24,			December 25,
	March 25,			March 26,
	2022			2021
	2023			2022
	(in thousands)
Cash flows from financing activities
Proceeds from issuance of stock	$	14,~~285~~059		$	~~706~~11,741
Borrowings under credit facility		7292,000			-
Repayment of borrowings under credit facility		(3555,000	)		-
Payments on finance lease obligations		(3971	)		(74111	)
Payment of cash dividends		(1326,~~453~~914	)		(1224,~~080~~163	)
Net cash provided by (used in) financing activities	$	2414,~~793~~074		$	(1112,~~448~~533	)

● ~~Borrowings~~The ~~under~~decrease ~~credit~~in ~~facility~~proceeds ~~and~~from ~~repayment~~issuance of ~~borrowings~~stock ~~under~~was ~~credit~~primarily ~~facility~~due ~~relate~~ to ~~the~~a ~~Company’s~~lower ~~cash~~rate ~~draws~~of ~~and~~option ~~repayments~~exercises ~~made~~ in the ~~three~~six months ended ~~December~~March 2425, ~~2022~~2023 tocompared ~~primarily~~with ~~fund~~the ~~working~~six ~~capital~~months ~~needs~~ended ~~and~~March ~~investments~~26, ~~in additional production capacity in our plants~~2022.

● ~~The~~Borrowings ~~increase~~under incredit ~~payment~~facility and repayment of ~~cash~~borrowings ~~dividends~~under ~~from~~credit ~~prior~~facility ~~year~~relate ~~period~~to ~~was~~the ~~due~~Company’s tocash draws and repayments made in the ~~raising~~six ofmonths ~~our~~ended ~~quarterly~~March ~~dividend~~25, ~~during~~2023 ~~fiscal~~to ~~2022~~primarily fund working capital needs.

●

Dividends paid increased as our quarterly dividend was raised during fiscal 2022.

Liquidity

As of ~~December~~March 2425, ~~2022~~2023, we had $5443.93 million of Cash and Cash Equivalents, and $64.4 million of Marketable Securities.

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.30

33Interest 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 ~~December~~March 2425, ~~2022~~2023, the Company is in compliance with all financial covenants of the Credit Agreement.

As of ~~December~~March 2425, ~~2022~~2023, we had $92.0 million of outstanding borrowings drawn on the Amended Credit Agreement. As of ~~September~~March 2425, ~~2022~~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.

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 ~~our~~its ~~Annual~~2022 ~~Report~~annual report on Form 10-K ~~for~~filed with the ~~fiscal year ended September 24, 2022~~SEC.

3431

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 ~~December~~March 2425, ~~2022~~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 ~~December~~March 2425, ~~2022~~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.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company is subject, from time to time, to certain legal proceedings and claims that arise from our business. As of the date of this Quarterly Report on Form 10-Q, the Company does not expect that any such proceedings will have a material adverse effect on the Company’s financial position or results of operations.

Item 1A. Risk Factors

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.

September 24, 2022. The risks identified in that report have not changed in any material respect.

Item 2. Unregistered Sales of Equity Securities and the Use of Proceeds

In October 2022, we withheld 129 shares to cover taxes associated with the vesting of certain restricted stock units held by officers and employees. In November 2022, we withheld 760 shares to cover taxes associated with the vesting of certain restricted stock units held by officers and employees.None

~~Item 6. Exhibits~~32

Exhibit No.
10.1	Form of Performance Share Unit
10.2	Form of Service Share Unit
31.1 &	Certification Pursuant to Section 302 of
31.2	the Sarbanes-Oxley Act of 2002
32.1 &	Certification Pursuant to the 18 U.S.C.
32.2	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 December 24, 2022, formatted in iXBRL (Inline extensible Business Reporting Language):
	(i)	Consolidated Balance Sheets,
	(ii)	Consolidated Statements of Earnings,
	(iii)	Consolidated Statements of Comprehensive Income,
	(iv)	Consolidated Statements of Cash Flows and
	(v)	the Notes to the Consolidated Financial Statements
104	Cover Page Interactive Data File (formatted as Inline XBRL and containing in Exhibit 101)

Item 6.

Exhibits

35Exhibit No.

SIGNATURES

	10.1	J & J Snack Foods Corp. 2022 Long-Term Incentive Plan (Incorporated by reference to the Company’s Form 8-K filed on February 14, 2023).
	10.2	Executive Employment Agreement, dated February 14, 2023, by and between J & J Snack Foods Corp. and Daniel Fachner (Incorporated by reference to the Company’s Form 8-K filed on February 17, 2023).
	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.

~~Pursuant~~101.1 toThe ~~the~~following ~~requirements~~financial ofinformation ~~the~~from ~~Securities~~J&J ~~Exchange~~Snack ~~Act~~Foods ofCorp.'s ~~1934,~~Quarterly ~~the~~Report ~~Registrant~~on ~~has~~Form ~~duly~~10-Q ~~caused~~for ~~this~~the ~~report~~quarter toended beMarch ~~signed~~25, on2023, ~~its~~formatted ~~behalf~~in byiXBRL ~~the~~(Inline ~~undersigned~~extensible ~~thereunto~~Business ~~duly~~Reporting ~~authorized.~~Language):

		J & J SNACK FOODS CORP.
Dated: February 2, 2023		/s/ Dan Fachner
		Dan Fachner
		President and Chief Executive Officer (Principal Executive Officer)
		/s/ Ken A. Plunk
Dated: February 2, 2023		Ken A. Plunk, Senior Vice President and Chief Financial Officer (Principal Financial Officer) (Principal Accounting Officer)

	(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

36104 Cover Page Interactive Data File (formatted as Inline XBRL and containing in Exhibit 101)

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 4, 2023	/s/ Dan Fachner
	Dan Fachner
	President and Chief Executive Officer
	(Principal Executive Officer)

Dated: May 4, 2023	/s/ Ken A. Plunk
	Ken A. Plunk, Senior Vice
	President and Chief Financial Officer
	(Principal Financial Officer)
	(Principal Accounting Officer)

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