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What changed in J&J SNACK FOODS CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of J&J SNACK FOODS CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+97 added−92 removedSource: 10-K (2023-11-28) vs 10-K (2022-11-22)

Top changes in J&J SNACK FOODS CORP's 2023 10-K

97 paragraphs added · 92 removed · 59 edited across 3 sections

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeItem 5. Market For Registrant ’ s Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities The Company’s common stock is traded on the NASDAQ Global Select Market under the symbol “JJSF.” As of September 24, 2022, we had approximately 79 stockholders of record of our common stock.
Biggest changeItem 5. Market For Registrant ’ s Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities The Company’s common stock is traded on the NASDAQ Global Select Market under the symbol “JJSF.” As of September 30, 2023, we had approximately 75 stockholders of record of our common stock.
A plan to purchase 500,000 shares was announced on August 4, 2017 with no expiration date. 318,858 shares remain to be purchased under this plan. For information on the Company’s Equity Compensation Plans, please see Item 12 herein.
A plan to purchase 500,000 shares was announced on August 4, 2017 with no expiration date. 318,858 shares remain to be purchased under this plan. 15 For information on the Company’s Equity Compensation Plans, please see Item 12 herein.
Removed
We did not purchase any shares of our common stock in our fiscal years ended September 25, 2021 and September 24, 2022. A plan to purchase 500,000 shares was announced on November 8, 2012. 500,000 shares were purchased under this plan with the last purchase in August 2017.
Added
We did not purchase any shares of our common stock in our fiscal fourth quarter, and no shares were withheld in our fiscal fourth quarter to cover taxes associated with the vesting of certain restricted stock units held by officers and employees.
Added
The following graph shows a five-year comparison of cumulative total returns for our stock, the Nasdaq Composite Index and our peer group, the Standard & Poor’s (“S&P”) Packaged Foods & Meats Index.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeFiscal 2022 Compared to Fiscal 2021 September 24, September 25, 2022 2021 (in thousands) Cash flows from operating activities Net earnings $ 47,235 $ 55,607 Non-cash items in net income: Depreciation of fixed assets 49,669 46,781 Amortization of intangibles and deferred costs 3,454 2,610 Intangible asset impairment charges 1,010 1,273 Losses (Gains) from disposals of property & equipment 220 (231 ) Share-based compensation 4,269 4,199 Deferred income taxes 8,829 (2,896 ) Loss (Gain) on marketable securities 315 (1,026 ) Other (95 ) 77 Changes in assets and liabilities, net of effects from purchase of companies (88,844 ) (4,895 ) Net cash provided by operating activities $ 26,062 $ 101,499 - The increase in deferred income taxes was primarily related to increased deferred tax liabilities which arose in connection with overall depreciation related temporary differences, in fiscal year 2022. - Cash flows associated with changes in assets and liabilities, net effects from purchase of companies decreased in fiscal year 2022 largely due to the increase in accounts receivable, inventory, and prepaid balances.
Biggest changeFiscal 2023 Compared to Fiscal 2022 September 30, September 24, 2023 2022 (in thousands) Cash flows from operating activities Net earnings $ 78,906 $ 47,235 Non-cash items in net income: Depreciation of fixed assets 56,616 49,669 Amortization of intangibles and deferred costs 6,525 3,454 Intangible asset impairment charges 1,678 1,010 (Gains) Losses from disposals of property & equipment (409 ) 220 Share-based compensation 5,318 4,269 Deferred income taxes 10,935 8,829 (Gain) Loss on marketable securities (8 ) 315 Other 323 (95 ) Changes in assets and liabilities, net of effects from purchase of companies 12,395 (88,844 ) Net cash by operating activities $ 172,279 $ 26,062 ● The increase in depreciation of fixed assets was largely due to prior year purchases of property, plant and equipment, as well as depreciation expense related to assets acquired in the fiscal 2022 Dippin’ Dots acquisition. ● The increase in amortization of intangibles and deferred costs was related to intangible assets acquired in the fiscal 2022 Dippin’ Dots acquisition. ● The increase in deferred income taxes was primarily related to increased deferred tax liabilities which arose in connection with overall depreciation related temporary differences in fiscal year 2023. ● Cash flows associated with changes in assets and liabilities, net effects from purchase of companies, generated approximately $12.4 million of cash in fiscal 2023 compared with a usage of $88.8 million of cash in fiscal 2022.
Gross profit as a percentage of sales increased to 26.8% in fiscal 2022 from 26.1% in fiscal 2021. Inflation continued to build over the year which significantly pressured margins. The impact was especially pronounced in key raw material purchases like flour, eggs, dairy, chocolates and meats, as well as packaging and fuel.
GROSS PROFIT Gross profit as a percentage of sales increased to 26.8% in fiscal 2022 from 26.1% in fiscal 2021. Inflation continued to build over the year which significantly pressured margins. The impact was especially pronounced in key raw material purchases like flour, eggs, dairy, chocolates and meats, as well as packaging and fuel.
The accounts receivable balance increased primarily due to the overall increase in sales in our fourth quarter of fiscal 2022 compared with fiscal 2021. The inventory balance increased primarily due to inflationary pressures seen during fiscal 2022, as well as strategic decisions to store more finished goods.
The fiscal 2022 accounts receivable balance increased primarily due to the overall increase in sales in our fourth quarter of fiscal 2022 compared with fiscal 2021. The fiscal 2022 inventory balance increased primarily due to inflationary pressures seen during fiscal 2022, as well as strategic decisions to store more finished goods.
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.
ACQUISITIONS 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.
Management ’ s Discussion And Analysis Of Financial Condition And Results Of Operations This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of our management regarding our financial condition and results of operations, liquidity and certain other factors that may affect our future results.
Management ’ s Discussion And Analysis Of Financial Condition And Results Of Operations Objective This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of our management regarding our financial condition and results of operations, liquidity and certain other factors that may affect our future results.
Inflation The inflationary cost environment we experienced during fiscal 2022 resulted in significantly higher input costs for our business. During fiscal 2022, we experienced unprecedented inflationary pressures on commodities such as flour, oils, eggs, meats and dairy, in addition to notably higher costs for packaging, freight and warehousing, and labor.
The inflationary cost environment we experienced during fiscal 2022 resulted in significantly higher input costs for our business. During fiscal 2022, we experienced unprecedented inflationary pressures on commodities such as flour, oils, eggs, meats and dairy, in addition to notably higher costs for packaging, freight and warehousing, and labor.
As of September 24, 2022, we had $160.2 million of additional borrowing capacity, after giving effect to the $9.8 million of letters of credit outstanding. The Company’s material cash requirements include the following contractual and other obligations: Purchase Commitments Our most significant raw material requirements include flour, packaging, shortening, corn syrup, sugar, juice, cheese, chocolate, and a variety of nuts.
As of September 24, 2022, we had $188.2 million of additional borrowing capacity, after giving effect to the $9.8 million of letters of credit outstanding. The Company’s material cash requirements include the following contractual and other obligations: Purchase Commitments Our most significant raw material requirements include flour, packaging, shortening, corn syrup, sugar, juice, cheese, chocolate, and a variety of nuts.
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.
There are many factors which can impact our net earnings from year to year, 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.
The increase in fiscal 2022 was primarily due to increased spend for new lines at various plants aimed at increasing capacity. - Proceeds from redemption and sales of marketable securities decreased in fiscal 2022 as in prior years, we strategically chose to no longer re-invest redeemed proceeds into marketable securities given the low interest rate environment.
The increase in fiscal 2023 was primarily due to increased spend for new lines at various plants aimed at increasing capacity. ● Proceeds from redemption and sales of marketable securities decreased in fiscal 2023 as in prior years, we strategically chose to no longer re-invest redeemed proceeds into marketable securities given the low interest rate environment.
In fiscal 2021 and fiscal 2022, as part of the economy that impact our operations opened, sales in our Food Service and Frozen Beverages segments improved. The aforementioned shift, and overall volatility in demand, has had a significant impact on the operating results of each of our three segments over the past three fiscal years.
In fiscal 2021 and fiscal 2022, as part of the pandemic economy that impacted our operations opened, sales in our Food Service and Frozen Beverages segments improved. The aforementioned shift, and overall volatility in demand, has had a significant impact on the operating results of each of our three segments over the past three fiscal years.
Other than those potential impacts, we do not believe there is a reasonable likelihood that there will be a material change in tax related balances. 25 Business Combinations We use assumptions and estimates in determining the fair value of assets acquired and liabilities assumed in a business combination.
Other than those potential impacts, we do not believe there is a reasonable likelihood that there will be a material change in tax related balances. 30 Business Combinations We use assumptions and estimates in determining the fair value of assets acquired and liabilities assumed in a business combination.
Sales were up across most product lines as many of the venues and locations where our products are sold that were previously shut down or operating at reduced capacity in fiscal 2021 have mostly fully re-opened in fiscal 2022.
Sales were up across most product lines as many of the venues and locations where our products are sold that were previously shut down or operating at reduced capacity in fiscal 2021 had mostly or fully re-opened in fiscal 2022.
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 Company continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses. The allowance for estimated credit losses 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.
However, if actual results are not consistent with our estimates or assumptions, we may be exposed to impairment charges that could be material. 26
However, if actual results are not consistent with our estimates or assumptions, we may be exposed to impairment charges that could be material. 31
Our tests at September 24, 2022 show that the fair value of each of our reporting units with goodwill exceeded its carrying value by at least 50%. Therefore, no further analysis was required. The inputs and assumptions used involve considerable management judgment and are based upon assumptions about expected future operating performance.
Our tests at September 30, 2023 show that the fair value of each of our reporting units with goodwill exceeded its carrying value by at least 50%. Therefore, no further analysis was required. The inputs and assumptions used involve considerable management judgment and are based upon assumptions about expected future operating performance.
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.
The Alternate Base Rate is defined in the Credit Agreement. 27 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.
These acquisitions were accounted for under the purchase method of accounting, and their operations are included in the accompanying consolidated financial statements from their respective acquisition dates. 19 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 fund future growth and expansion.
The acquisition was accounted for under the purchase method of accounting, and its operations are included in the accompanying consolidated financial statements from their respective acquisition dates. 25 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 fund future growth and expansion.
The fair value of our indefinite lived intangible assets is calculated principally using a relief from royalty valuation approach. We are required to make estimates and assumptions about sales growth, royalty rates, and discount rates based on budgets, business plans, economic projections, and marketplace data.
The fair value of our indefinite lived intangible assets is calculated using either a relief from royalty valuation approach, or the excess earnings method. We are required to make estimates and assumptions about sales growth, royalty rates, and discount rates based on budgets, business plans, economic projections, and marketplace data.
We attempt to minimize the effect of future price fluctuations related to the purchase of raw materials primarily through forward purchasing to cover future manufacturing requirements, generally for periods from 1 to 12 months. As of September 24, 2022, we have approximately $130 million of such commitments.
We attempt to minimize the effect of future price fluctuations related to the purchase of raw materials primarily through forward purchasing to cover future manufacturing requirements, generally for periods from 1 to 12 months. As of September 30, 2023, we have approximately $125 million of such commitments.
As of September 24, 2022, the Company is in compliance with all financial covenants of the Credit Agreement. As of September 24, 2022, we had $55.0 million of outstanding borrowings drawn on the Amended Credit Agreement.
As of September 30, 2023, the Company is in compliance with all financial covenants of the Credit Agreement. As of September 30, 2023, we had $27.0 million of outstanding borrowings drawn on the Amended Credit Agreement.
The prepaid balance increased primarily due to an increase in prepaid income taxes. 20 September 24, September 25, 2022 2021 (in thousands) Cash flows from investing activities Payments for purchases of companies, net of cash acquired (221,301 ) - Purchases of property, plant and equipment (87,291 ) (53,578 ) Proceeds from redemption and sales of marketable securities 12,026 60,891 Proceeds from disposal of property and equipment 399 2,435 Other - 191 Net cash (used in) provided by investing activities $ (296,167 ) $ 9,939 - Payments for purchases of companies, net of cash acquired, in fiscal 2022 related to the Dippin’ Dots acquisition. - 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 fiscal 2022 prepaid balance increased primarily due to an increase in prepaid income taxes. 26 September 30, September 24, 2023 2022 (in thousands) Cash flows from investing activities Payments for purchases of companies, net of cash acquired - (221,301 ) Purchases of property, plant and equipment (104,737 ) (87,291 ) Proceeds from redemption and sales of marketable securities 9,716 12,026 Proceeds from disposal of property and equipment 1,781 399 Net cash (used in) by investing activities $ (93,240 ) $ (296,167 ) ● In fiscal 2022, the payments for purchases of companies, net of cash acquired, related to the Dippin’ Dots acquisition. ● 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.
Valuation of Long-Lived Assets and Other Intangible Assets We record an impairment charge to property, plant and equipment and amortizing intangible assets in accordance with the applicable accounting standards, when, based on certain indicators of impairment, we believe such assets have experienced a decline in value that is other than temporary.
We have not made any material changes in the accounting methodology used to value goodwill during the past three fiscal years. 29 Valuation of Long-Lived Assets and Other Intangible Assets We record an impairment charge to property, plant and equipment and amortizing intangible assets in accordance with the applicable accounting standards, when, based on certain indicators of impairment, we believe such assets have experienced a decline in value that is other than temporary.
Changes in statutory rates and tax laws in jurisdictions in which we operate may have a material effect on our annual tax rate. The effect of these changes, if any, would be recognized as a discrete item upon enactment. Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenues and expenses.
Income Taxes The annual tax rate is based on our income and statutory tax rates. Changes in statutory rates and tax laws in jurisdictions in which we operate may have a material effect on our annual tax rate. The effect of these changes, if any, would be recognized as a discrete item upon enactment.
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 purchase price was approximately $223.6 million, consisting entirely of cash. 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.
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.
Liquidity As of September 30, 2023, we had $49.6 million of cash and cash equivalents. 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.
Assumptions used in these forecasts are consistent with internal planning. The actual performance of the reporting units could differ from management’s estimates due to changes in business conditions, operating performance, economic conditions, competition, and consumer preferences. We have not made any material changes in the accounting methodology used to value goodwill during the past three fiscal years.
Assumptions used in these forecasts are consistent with internal planning. The actual performance of the reporting units could differ from management’s estimates due to changes in business conditions, operating performance, economic conditions, competition, and consumer preferences.
Our Frozen Beverage segment had operating income of $33.8 million in fiscal 2022 compared to $6.1 million in fiscal 2021 primarily a result of higher beverage sales volume which drove leverage across the business. 17 RESULTS OF OPERATIONS: Fiscal Year 2021 (52 weeks) Compared to Fiscal Year 2020 (52 weeks) Net sales increased $122.5 million, or 12%, to $1,144.6 million in fiscal 2021 from $1,022.0 million in fiscal 2020.
Our Frozen Beverage segment had operating income of $33.8 million in fiscal 2022 compared to $6.1 million in fiscal 2021 primarily a result of higher beverage sales volume which drove leverage across the business.
Other snack food products include funnel cake and handheld products. The Company’s principal frozen beverage products are the ICEE brand frozen carbonated beverage and the SLUSH PUPPIE brand frozen non-carbonated beverage.
The Company’s principal snack food products are soft pretzels, frozen novelties, churros and bakery products. 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.
Total operating expenses increased $80.1 million to $307.8 million in fiscal 2022 and increased as a percentage of sales to 22.3% of sales from 19.9% in fiscal 2021. The increase reflects the significant impact of inflationary pressures across the majority of our cost line items including industry-wide freight and distribution cost increases, wage increases, and overall administrative expense increases.
The increase reflects the significant impact of inflationary pressures across the majority of our cost line items including industry-wide freight and distribution cost increases, wage increases, and overall administrative expense increases. Operating expenses included intangible asset impairment charges of $1.0 million in fiscal 2022 and $1.3 million in fiscal 2021.
Critical Accounting Policies, Judgments and Estimates We prepare our financial statements in conformity with accounting principles generally accepted in the United States of America.
Off – Balance Sheet Arrangements The Company has off-balance sheet arrangements for purchase commitments as of September 30, 2023. Critical Accounting Policies, Judgments and Estimates We prepare our financial statements in conformity with accounting principles generally accepted in the United States of America.
Net earnings decreased $8.4 million or 15%, in fiscal 2022 to $47.2 million, or $2.46 per diluted share, from $55.6 million or $2.91 per diluted share, in fiscal 2021 as a result of the aforementioned items.
NET EARNINGS Net earnings decreased $8.4 million, or 15%, in fiscal 2022 to $47.2 million, or $2.46 per diluted share, from $55.6 million or $2.91 per diluted share, in fiscal 2021 as a result of the aforementioned items. 23 Results of Operations - Segments The following table is a summary of sales and operating income, which is how we measure segment profit.
Revenue Recognition 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.
Following are some of the areas requiring significant judgments and estimates: revenue recognition, allowance for estimated credit losses, valuation of goodwill and long-lived and intangible assets, insurance reserves, and income taxes and business combinations. 28 Revenue Recognition 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.
However, if the level of redemption rates or performance was to vary significantly from estimates, we may be exposed to gains or losses that could be material.
However, if the level of redemption rates or performance was to vary significantly from estimates, we may be exposed to gains or losses that could be material. We have not made any material changes in the accounting methodology used to recognize revenue during the past three fiscal years.
While we believe we have made reasonable estimates and assumptions to calculate fair value of these assets, it is possible a material change could occur.
While we believe we have made reasonable estimates and assumptions to calculate fair value of these assets, it is possible a material change could occur. If our actual results are not consistent with our estimates and assumptions used to calculate fair value, it could result in a material impairment of our long-lived assets and other intangibles.
Our investments generated before tax income of $1.0 million in fiscal 2022, down from $2.8 million in fiscal 2021 due to decreases in the amount of investments. Our effective tax rate in fiscal 2022 was 23.5%. Our effective tax rate in fiscal 2021 year was 24.9%.
Administrative expenses were 4.0% and 3.5% of sales in fiscal 2022 and fiscal 2021, respectively. OTHER INCOME AND EXPENSE Our investments generated before tax income of $1.0 million in fiscal 2022, down from $2.8 million in fiscal 2021 due to decreases in the amount of investments.
Refer to the Company’s Annual Report on Form 10-K for the fiscal year ended September 25, 2021 for additional information related to the discussion and analysis of our financial condition and results of operations for the fiscal year ended September 25, 2021 compared to the fiscal year ended September 26, 2020.
Refer to the Company’s Annual Report on Form 10-K for the fiscal year ended September 24, 2022 for additional information related to the discussion and analysis of our financial condition and results of operations for the fiscal year ended September 24, 2022 compared to the fiscal year ended September 25, 2021. 16 Business Overview The Company manufactures snack foods and distributes frozen beverages which it markets nationally to the foodservice and retail supermarket industries.
Deferred tax assets and liabilities are measured based on the enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid. We have not made any material changes in the accounting methodology used to account for income taxes during the past three fiscal years.
We have not made any material changes in the accounting methodology used to account for income taxes during the past three fiscal years. Changes in tax laws and rates could affect recorded deferred tax assets and liabilities in the future.
Service revenue increased 10% to $89.8 million for the year led by an acceleration in maintenance calls and additional growth in one of our larger customers, earlier in the fiscal year.
Theater sales continued on an upward trajectory as movie goers indulged in their favorite snacks and view highly anticipated movie releases. Service revenue increased 10% to $89.8 million in fiscal 2022 led by an acceleration in maintenance calls and additional growth in one of our larger customers, earlier in fiscal 2022.
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. 16 FOOD SERVICE Sales to food service customers increased $147.7 million, or 20%, to $872.7 million in fiscal 2022.
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. 19 The following table is a summary of sales and operating income, which is how we measure segment profit.
September 24, September 25, 2022 2021 (in thousands) Cash flows from financing activities Proceeds from issuance of stock 16,160 20,256 Borrowings under credit facility 125,000 - Repayment of borrowings under credit facility (70,000 ) - Payments for debt issuance costs (225 ) - Payments on finance lease obligations (279 ) (144 ) Payment of cash dividends (48,437 ) (44,785 ) Net cash provided by (used in) financing activities $ 22,219 $ (24,673 ) - Borrowings under credit facility in fiscal 2022 related to funding used to supplement available cash balances for the Dippin’ Dots acquisition. - Repayment of borrowings under credit facility in fiscal 2022 related to the cash paydown of borrowings, primarily resulting from the generation of operating cash subsequent to the acquisition. - Dividends paid during fiscal 2022 increased as our quarterly dividend was raised during fiscal 2022. 21 Liquidity As of September 24, 2022, we had $35.2 million of cash and cash equivalents, and $9.7 million of marketable securities.
September 30, September 24, 2023 2022 (in thousands) Cash flows from financing activities Proceeds from issuance of stock 15,212 16,160 Borrowings under credit facility 114,000 125,000 Repayment of borrowings under credit facility (142,000 ) (70,000 ) Payments for debt issuance costs - (225 ) Payments on finance lease obligations (180 ) (279 ) Payment of cash dividends (53,877 ) (48,437 ) Net cash (used in) provided by financing activities $ (66,845 ) $ 22,219 ● Borrowings under credit facility and repayment of borrowings under credit facility relate to the Company’s cash draws and repayments made to primarily fund working capital needs, as well as the initial draw made in fiscal 2022 to fund the Dippin’ Dots acquisition. ● Dividends paid during fiscal 2023 increased as our quarterly dividend was raised during fiscal 2023.
Our operating leases include leases for real estate from some of our office and manufacturing facilities as well as manufacturing and non-manufacturing equipment used in our business.
Our operating leases include leases for real estate from some of our office, distribution and manufacturing facilities as well as manufacturing and non-manufacturing equipment used in our business. As of September 30, 2023, we have operating lease payment obligations of $94.1 million, with $16.5 million payable within 12 months.
We have not made any material changes in the accounting methodology used to establish our self-insurance liability during the past three fiscal years. We do not believe that there is a reasonable likelihood that there will be a material change in the estimate or assumptions used to calculate our self-insurance liability.
We do not believe that there is a reasonable likelihood that there will be a material change in the estimate or assumptions used to calculate our self-insurance liability. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to gains or losses that could be material.
Operating expenses included intangible asset impairment charges of $1.0 million in fiscal 2022 and $1.3 million in fiscal 2021. Marketing and selling expenses decreased to 6.6% this year from 6.8% of sales in fiscal 2021 driven by effective investment of marketing dollars aligned with sales recovery.
Marketing and selling expenses decreased to 6.6% this year from 6.8% of sales in fiscal 2021 driven by effective investment of marketing dollars aligned with sales recovery. Distribution expenses as a percentage of sales increased to 11.6% from 9.5% in fiscal 2021 due to rising freight and fuel costs.
We record a liability for incurred but not yet reported or paid claims based on our historical experience of claims payments and a calculated lag time period. We maintain a spreadsheet that includes claims payments made each month according to the date the claim was incurred.
Insurance Reserves We have a self-insured medical plan which covers approximately 1,800 of our employees. We record a liability for incurred but not yet reported or paid claims based on our historical experience of claims payments and a calculated lag time period.
Sales of new products in the first twelve months since their introduction were approximately $1 million in fiscal year 2021. Operating income in our Retail Supermarkets segment increased from $23.2 million to $25.9 million for the year primarily due to higher volume.
Sales of new products in the first twelve months since their introduction in retail supermarkets were approximately $0.6 million in fiscal 2023. Operating income in our Retail Supermarkets segment remained relatively flat in fiscal 2023 as compared with fiscal 2022, with a decrease of $0.1 million, or 1%.
The decrease in operating income was primarily due to the significant increase in ingredients, production and distribution costs year over year, as well as our ERP implementation which previously impacted our results in the fiscal second quarter. RETAIL SUPERMARKETS Sales of products to retail supermarkets increased $13.0 million or 7% to $197.9 million in fiscal year 2022.
The decrease in operating income was primarily due to the significant increase in ingredients, production and distribution costs year over year, as well as our ERP implementation which previously impacted our results in the fiscal second quarter of 2022. 24 RETAIL SUPERMARKETS SEGMENT RESULTS Fiscal year ended September 24, September 25, 2022 2021 (52 weeks) (52 weeks) % Change (in thousands) Retail Supermarket Sales to External Customers Soft pretzels $ 61,925 $ 54,990 12.6 % Frozen novelties 108,911 100,059 8.8 % Biscuits 24,695 24,197 2.1 % Handhelds 5,640 7,574 (25.5 )% Coupon redemption (3,713 ) (3,689 ) 0.7 % Other 485 1,766 (72.5 )% Total Retail Supermarket $ 197,943 $ 184,897 7.1 % Retail Supermarket Operating Income $ 9,487 $ 25,914 (63.4 )% Sales of products to retail supermarkets increased $13.0 million, or 7%, to $197.9 million in fiscal year 2022.
FROZEN BEVERAGES Total frozen beverage segment sales increased 32% to $310.0 million in fiscal 2022 and beverage sales increased 48% or $59.6 million for the year. Gallon sales increased 39% from last year. The increase in gallon sales reflects the strong demand across theaters, amusement parks, convenience and restaurants.
Beverage sales increased 22%, or $40.6 million, in fiscal 2023. Gallon sales increased 10% from the prior fiscal year. The increase in gallon sales reflects the strong momentum in theaters, along with continued growth in amusement parks, convenience, restaurants, and retail venues.
In the amusement parks channel, we continue to see strong growth as both domestic and international visitation numbers continue to recover, and exceed, pre-COVID-19 levels. Theater sales continue on their upward trajectory as movie goers indulge in their favorite snacks and view highly anticipated movie releases.
Gallon sales increased 39% from last year. The increase in gallon sales reflects the strong demand across theaters, amusement parks, convenience and restaurants. In the amusement parks channel, we continued to see strong growth as both domestic and international visitation numbers continued to recover, and exceeded, pre-COVID-19 levels.
The increase is largely attributable to the benefit of increased sales, favorable product mix and corresponding margin efficiencies. Total operating expenses increased $6.5 million to $227.7 million in fiscal 2021 but as a percentage of sales decreased to 19.9% of sales from 21.6% in 2020.
OPERATING EXPENSES Total operating expenses increased $80.1 million to $307.8 million in fiscal 2022 and increased as a percentage of sales to 22.3% of sales from 19.9% in fiscal 2021.
Net earnings increased $37.3 million or 204%, in fiscal 2021 to $55.6 million, or $2.91 per diluted share, from $18.3 million or $0.96 per diluted share, in fiscal 2020 as a result of the aforementioned items.
INCOME TAX EXPENSE Our effective tax rate in fiscal 2023 was 26.6%. Our effective tax rate in fiscal 2022 year was 23.5%. NET EARNINGS Net earnings increased $31.7 million, or 67%, in fiscal 2023 to $78.9 million, or $4.08 per diluted share, from $47.2 million or $2.46 per diluted share, in fiscal 2022 as a result of the aforementioned items.
Soft pretzel sales to retail supermarkets were $55.0 million, an increase of $5.8 million, or 12%, from sales in 2020. Sales of frozen novelties increased $11.3 million or 13% to $100.1 million. Sales of biscuits and dumplings decreased 15% to $24.2 million for the year. Handheld sales to retail supermarket customers decreased 38% to $7.6 million for the year.
Sales of frozen novelties increased $6.9 million, or 6%, to $115.8 million in fiscal 2023. Sales of biscuits and dumplings increased 2% to $25.1 million in fiscal 2023. Handheld sales to retail supermarket customers increased 195% to $16.7 million in fiscal 2023, with the increase largely driven by expansion with a major retailer.
To help offset these cost headwinds, we implemented a series of pricing actions throughout fiscal 2022. 15 RESULTS OF OPERATIONS: Fiscal Year 2022 (52 weeks) Compared to Fiscal Year 2021 (52 weeks) Results of Consolidated Operations Net sales increased $236.1 million, or 21%, to $1,380.7 million in fiscal 2022 from $1,144.6 million in fiscal 2021.
To help offset these cost headwinds, we implemented a series of pricing actions throughout fiscal 2022. Fiscal Period The Company’s fiscal year is the 52- or 53- week period that ends on the last Saturday of September.
We have not made any material changes in the accounting methodology used to recognize revenue during the past three fiscal years. 23 Allowance for Doubtful Receivables We provide an allowance for doubtful receivables after taking into consideration historical experience and other factors.
Allowance for Estimated Credit Losses We provide an allowance for estimated credit losses after taking into consideration historical experience and other factors.
FOOD SERVICE Sales to food service customers increased $106.1 million, or 17%, to $725.0 million in fiscal 2021. Soft pretzel sales to the food service market increased 16% to $175.0 million for the year. Frozen novelties sales increased $9.4 million, or 27%, to $44.6 million for the year.
Soft pretzel sales to the food service market increased 14% to $235.6 million for the year, led by the continued increase in sales of our core pretzel products. Frozen novelties sales increased $67.2 million, or 86%, to $145.4 million for the year, with the increase largely driven by incremental Dippin’ Dots sales during fiscal 2023.
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Business Overview The Company manufactures snack foods and distributes frozen beverages which it markets nationally to the foodservice and retail supermarket industries. The Company’s principal snack food products are soft pretzels, frozen novelties, churros and bakery products. We believe we are the largest manufacturer of soft pretzels in the United States.
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In fiscal 2023, our operating environment became more predictable and stable, and the majority of the volatility and shifts in demand that had been more present in fiscal 2021 and 2022, somewhat subsided.
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Distribution expenses as a percent of sales increased to 11.6% from 9.5% in fiscal 2021 due to rising freight and fuel costs. Administrative expenses were 4.0% and 3.5% of sales in fiscal 2022 and fiscal 2021, respectively. Operating income decreased $9.4 million or 13% to $61.8 million in fiscal year 2022 as a result of the aforementioned items.
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Inflation We continued to experience cost inflation through fiscal 2023, although the impact was significantly less than it had been in fiscal 2022, primarily tied to a smaller group of raw materials and packaging, and materially offset by the benefit of the pricing actions that had been taken in fiscal 2022.
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As parts of the economy that impact our operations continued to open, sales for the year improved from a year ago. Approximately 2/3 of the Company’s sales are to venues and locations that previously shut down or sharply curtailed their foodservice operations as a result of COVID-19.
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An additional week is included in the last fiscal quarter every five or six years to realign the Company’s fiscal quarters with calendar quarters, which occurred in the Company’s fourth quarter of fiscal 2023.
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Churro sales to food service customers were up 38% to $64.9 million for the year. Sales of bakery products increased $10.1 million, or 3%, to $342.6 million for the year. Handheld sales to food service customers were up 110% to $75.6 million in 2021. Sales of funnel cake increased $4.9 million, or 29% to $21.5 million.
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The Company’s fiscal year 2023 spanned 53 weeks, whereas fiscal years 2022 and 2021 spanned 52 weeks each. 17 RESULTS OF OPERATIONS: Fiscal Year 2023 (53 weeks) Compared to Fiscal Year 2022 (52 weeks) Results of Consolidated Operations The following discussion provides a review of results for the fiscal year ended September 30, 2023 as compared with the fiscal year ended September 24, 2022.
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Sales were up across all product lines as many of the venues and locations where our products are sold that were previously shut down or operating at reduced capacity in 2020 have partially or fully re-opened in 2021. Sales of new products in the first twelve months since their introduction were approximately $39 million for the year.
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Summary of Results Fiscal year ended September 30, September 24, 2023 2022 (53 weeks) (52 weeks) % Change (in thousands) Net Sales $ 1,558,829 $ 1,380,656 12.9 % Cost of goods sold 1,088,964 1,011,014 7.7 % Gross Profit 469,865 369,642 27.1 % Operating expenses Marketing 110,258 91,636 20.3 % Distribution 172,804 159,637 8.2 % Administrative 75,425 55,189 36.7 % Intangible asset impairment charges 1,678 1,010 Other general expense 182 371 (50.9 )% Total Operating Expenses 360,347 307,843 17.1 % Operating Income 109,518 61,799 77.2 % Other income (expense) Investment income 2,743 980 179.9 % Interest expense (4,747 ) (1,025 ) 363.1 % Earnings before income taxes 107,514 61,754 74.1 % Income tax expense 28,608 14,519 97.0 % NET EARNINGS $ 78,906 $ 47,235 67.0 % Comparisons as a Percentage of Net Sales Fiscal year ended September 30, September 24, 2023 2022 Basis Pt Chg Gross profit 30.1 % 26.8 % 330 Marketing 7.1 % 6.6 % 50 Distribution 11.1 % 11.6 % (50 ) Administrative 4.8 % 4.0 % 80 Operating income 7.0 % 4.5 % 250 Earnings before income taxes 6.9 % 4.5 % 240 Net earnings 5.1 % 3.4 % 170 18 NET SALES Net sales increased by $178.2 million, or 13%, to $1,558.8 million in fiscal 2023.
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Operating income in our Food Service segment increased from $6.5 million in 2020 to $39.2 million in 2021. The increase in operating income was primarily due to the increase in sales which improved margin efficiencies and expense leverage. RETAIL SUPERMARKETS Sales of products to retail supermarkets increased $7.7 million or 4% to $184.9 million in fiscal year 2021.
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Fiscal 2023 net sales include $96.0 million of net sales from Dippin’ Dots, an increase of $62.2 million from prior fiscal year with the increase primarily attributable to the timing of the acquisition in prior year results.
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FROZEN BEVERAGES Total frozen beverage segment sales increased 4% to $234.7 million in fiscal 2021 and beverage sales increased 16% or $17.5 million for the year. Gallon sales increased 16% from last year. Service revenue decreased 3% to $81.3 million for the year primarily due to the loss of a major customer in October 2020.
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Organic sales growth 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. The organic sales growth was largely driven by improved marketing, new customers, additional product placement, as well as the benefit of our pricing actions that had been taken throughout fiscal 2022.
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Machines revenue, primarily sales of machines, decreased from $34.0 million in 2020 to $27.0 million in 2021 due to lower sales volumes with a major customer.
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To a lesser extent, fiscal 2023 net sales were benefited by the extra week in the fiscal year. GROSS PROFIT Gross profit increased by $100.2 million, or 27%, to $469.9 million in fiscal 2023. Gross profit as a percentage of sales increased to 30.1% in fiscal 2023 from 26.8% in fiscal 2022.
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Overall, sales in the frozen beverage segment grew as key amusement, convenience, restaurants, and retail venues returned to pre-COVID capacity in the second half of the year, which offset a slower recovery in the theater channel. The estimated number of Company-owned frozen beverage dispensers was 19,000 and 27,000 at September 25, 2021 and September 26, 2020, respectively.
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The increase in gross profit as a percentage of sales was driven by enhanced production efficiencies and the benefit of our fiscal 2022 pricing actions and a better product mix, along with the stabilization of inflationary pressures on the back of historic highs in fiscal 2022.
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Our Frozen Beverage segment had operating income of $6.1 million in 2021 compared to an operating loss of $12.5 million in 2020 primarily as a result of higher beverage sales volume due to COVID-19 recovery during 2021. CONSOLIDATED Other than as commented upon above by segment, there are no material specific reasons for the reported sales increases or decreases.
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The cost of key ingredients including flour, oils, dairy and meats either declined, or remained materially flat, though double-digit increases were seen in sugar/sweeteners and mixes, which continued to negatively impact margins on certain products including frozen novelties and churros.
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Sales levels can be impacted by the appeal of our products to our customers and consumers and their changing tastes, competitive and pricing pressures, sales execution, marketing programs, seasonal weather, customer stability and general economic conditions. 18 Gross profit as a percentage of sales increased to 26.1% in 2021 from 23.3% in 2020.
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OPERATING EXPENSES Total operating expenses increased by $52.5 million, or 17%, to $360.3 million in fiscal 2023 and increased as a percentage of sales to 23.1% in fiscal 2023 compared with 22.3% in fiscal 2022.
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Operating expenses this year included $1.3 million of intangible asset impairment charges and operating expenses in 2020 included $6.4 million of plant shutdown impairment costs for the shutdown of one of our manufacturing plants. Marketing and selling expenses decreased to 6.8% this year from 8.3% of sales in 2020 driven by effective investment of marketing dollars aligned with sales recovery.
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The increase reflects the impact of inflationary pressures across the majority of our cost line items including industry-wide freight and distribution cost increases and wage increases that more heavily impacted the Company’s comparative results in the first and second fiscal quarters, offset somewhat by the benefits seen from our strategic initiatives to improve logistics management and increase efficiency across our distribution network and supply chain.
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Distribution expenses as a percent of sales increased to 9.5% from 9.1% in 2020 due to rising freight and fuel costs. Administrative expenses were 3.5% and 3.6% of sales in 2021 and 2020, respectively. Operating income increased $54.0 million or 314% to $71.2 million in fiscal year 2021 as a result of the aforementioned items.
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The increase also reflects the full year impact of a higher expense Dippin’ Dots business in fiscal 2023 results. Operating expenses included intangible asset impairment charges of $1.7 million in fiscal 2023 and $1.0 million in fiscal 2022.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAs of September 24, 2022, the Company had no interest rate swap contracts. Interest Rate Risk At September 24, 2022, the Company had variable rate debt of $55.0 million with a weighted average interest rate of 3.87%. If borrowing rates were to increase 1% above the current rates, it would increase interest expense by $0.6 million on an annual basis.
Biggest changeAs of September 30, 2023, the Company had no interest rate swap contracts. Interest Rate Risk At September 30, 2023, the Company had variable rate debt of $27.0 million with a weighted average interest rate of 6.48%. If borrowing rates were to increase 1% above the current rates, it would increase interest expense by $0.3 million on an annual basis.
Quantitative And Qualitative Disclosures About Market Risk The following is the Company ’ s quantitative and qualitative analysis of its financial market risk: Interest Rate Sensitivity The Company has in the past entered into interest rate swaps to limit its exposure to interest rate risk and may do so in the future if the Board of Directors feels that such non-trading purpose is in the best interest of the Company and its shareholders.
Quantitative And Qualitative Disclosures About Market Risk The following is the Company ’ s quantitative and qualitative analysis of its financial market risk: Interest Rate Sensitivity The Company has in the past entered into interest rate swaps to limit its exposure to interest rate risk and may do so in the future if the Board of Directors feels that such non-trading hedging is in the best interest of the Company and its shareholders.
Foreign Exchange Rate Risk The Company has not entered into any forward exchange contracts to hedge its foreign currency rate risk as of September 24, 2022, because it does not believe its foreign exchange exposure is significant.
Foreign Exchange Rate Risk The Company has not entered into any forward exchange contracts to hedge its foreign currency rate risk as of September 30, 2023, because it does not believe its foreign exchange exposure is significant. Item 8.
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Financial Statements And Supplementary Data The financial statements of the Company are filed under this Item 8, beginning on page F-1 of this report.

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