J&J SNACK FOODS CORP - Quarter Report: 2018 December (Form 10-Q)

 

 

UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

X	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the period ended December 29, 2018

or

 

 

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Commission File Number:     0-14616

 

J & J SNACK FOODS CORP.

(Exact name of registrant as specified in its charter)

 

New Jersey		22-1935537
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

     

6000 Central Highway, Pennsauken, NJ 08109

(Address of principal executive offices)

 

Telephone (856) 665-9533

 

 

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.

 

X       Yes

No

    

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

X       Yes

No

   

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated filer	(X)	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

X     No

                         

As January 24, 2019 there were 18,782,640 shares of the Registrant’s Common Stock outstanding.

 

 

 

INDEX

    

			Page Number
Part I.	Financial Information
Item l.		Consolidated Financial Statements
	Consolidated Balance Sheets – December 29, 2018 (unaudited) and September 29, 2018		3
	Consolidated Statements of Earnings (unaudited) – Three months ended December 29, 2018 and December 30, 2017		4
	Consolidated Statements of Comprehensive Income (unaudited) – Three Months Ended December 29, 2018 and December 30, 2017		5
	Consolidated Statements of Changes In Stockholders’ Equity (unaudited) – Three Months Ended December 29, 2018 and December 30, 2017		6
	Consolidated Statements of Cash Flows (unaudited)– Three Months Ended December 29, 2018 and December 30, 2017		7
	Notes to the Consolidated Financial Statements(unaudited)		8
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.		Controls and Procedures	25
Part II.	Other Information
Item 6.		Exhibits	26

 

 

 

		December 29,				September 29,
		2018				2018
		(unaudited)
Assets
Current assets
Cash and cash equivalents		$	124,714			$	111,479
Marketable securities held to maturity			12,465				21,048
Accounts receivable, net			117,764				132,342
Inventories			117,842				112,884
Prepaid expenses and other			4,683				5,044
Total current assets			377,468				382,797
Property, plant and equipment, at cost
Land			2,494				2,494
Buildings			26,582				26,582
Plant machinery and equipment			291,178				290,396
Marketing equipment			294,252				290,955
Transportation equipment			8,930				8,929
Office equipment			30,854				30,752
Improvements			38,893				38,941
Construction in progress			13,895				8,468
Total Property, plant and equipment, at cost			707,078				697,517
Less accumulated depreciation and amortization			464,138				454,844
Property, plant and equipment, net			242,940				242,673
Other assets
Goodwill			102,511				102,511
Other intangible assets, net			56,907				57,762
Marketable securities held to maturity			130,857				118,765
Marketable securities available for sale			20,394				24,743
Other			2,907				2,762
Total other assets			313,576				306,543
Total Assets		$	933,984			$	932,013
Liabilities and Stockholders' Equity
Current Liabilities
Current obligations under capital leases		$	322			$	324
Accounts payable			65,149				69,592
Accrued insurance liability			11,114				11,217
Accrued liabilities			11,456				8,031
Accrued compensation expense			12,446				20,297
Dividends payable			9,389				8,438
Total current liabilities			109,876				117,899
Long-term obligations under capital leases			672				753
Deferred income taxes			53,003				52,322
Other long-term liabilities			1,888				1,948
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 18,774,000 and 18,754,000 respectively			30,016				27,340
Accumulated other comprehensive loss			(13,438	)			(11,994	)
Retained Earnings			751,967				743,745
Total stockholders' equity			768,545				759,091
Total Liabilities and Stockholders' Equity		$	933,984			$	932,013

---

 

		Three months ended
		December 29,				December 30,
		2018				2017
Net Sales		$	271,612			$	265,210
Cost of goods sold(1)			194,749				191,931
Gross Profit			76,863				73,279
Operating expenses
Marketing (2)			21,442				21,576
Distribution (3)			23,952				21,159
Administrative (4)			9,243				9,356
Other general expense (income)			144				(40	)
Total Operating Expenses			54,781				52,051
Operating Income			22,082				21,228
Other income (expense)
Investment income			1,040				1,489
Interest expense & other			(27	)			509
Earnings before income taxes			23,095				23,226
Income tax expense (benefit)			5,569				(13,023	)
NET EARNINGS		$	17,526			$	36,249
Earnings per diluted share		$	0.93			$	1.93
Weighted average number of diluted shares			18,897				18,778
Earnings per basic share		$	0.93			$	1.94
Weighted average number of basic shares			18,765				18,666

---

 

		Three months ended
		December 29,				December 30,
		2018				2017
Net Earnings		$	17,526			$	36,249
Foreign currency translation adjustments			(1,359	)			(3,887	)
Unrealized holding loss on marketable securities			-				(110	)
Total Other Comprehensive Loss			(1,359	)			(3,997	)
Comprehensive Income		$	16,167			$	32,252

---

 

										Accumulated
										Other
		Common Stock								Comprehensive				Retained
		Shares				Amount				Loss				Earnings				Total
Balance at September 29, 2018			18,754			$	27,340			$	(11,994	)		$	743,745			$	759,091
Issuance of common stock upon exercise of stock options			20				1,704				-				-				1,704
Foreign currency translation adjustment			-				-				(1,359	)			-				(1,359	)
Reclass from accumulated other comprehensive gain			-				-				(85	)			85				-
Dividends declared			-				-				-				(9,389	)			(9,389	)
Share-based compensation			-				972				-				-				972
Repurchase of common stock			-				-				-				-				-
Net earnings			-				-				-				17,526				17,526
Balance at December 29, 2018			18,774			$	30,016			$	(13,438	)		$	751,967			$	768,545

										Accumulated
										Other
		Common Stock								Comprehensive				Retained
		Shares				Amount				Loss				Earnings				Total
Balance at September 30, 2017			18,663			$	17,382			$	(8,875	)		$	673,815			$	682,322
Issuance of common stock upon exercise of stock options			5				253				-				-				253
Foreign currency translation adjustment			-				-				(3,887	)			-				(3,887	)
Unrealized holding gain on marketable securities			-				-				(110	)			-				(110	)
Issuance of common stock under deferred stock plan			-				2				-				-				2
Dividends declared			-				-				-				(8,400	)			(8,400	)
Share-based compensation			-				952				-				-				952
Repurchase of common stock			-				-				-				-				-
Net earnings			-				-				-				36,249				36,249
Balance at December 30, 2017			18,668			$	18,589			$	(12,872	)		$	701,664			$	707,381

---

 

		Three months ended
		December 29,				December 30,
		2018				2017
Operating activities:
Net earnings		$	17,526			$	36,249
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation of fixed assets			10,774				11,152
Amortization of intangibles and deferred costs			861				834
Share-based compensation			972				953
Deferred income taxes			689				(18,265	)
Loss (gain) on marketable securities			1,027				(8	)
Other			82				(317	)
Changes in assets and liabilities net of effects from purchase of companies
Decrease in accounts receivable			14,386				14,547
Increase in inventories			(4,974	)			(9,933	)
Decrease in prepaid expenses			340				111
Decrease in accounts payable and accrued liabilities			(8,872	)			(9,216	)
Net cash provided by operating activities			32,811				26,107
Investing activities:
Purchases of property, plant and equipment			(11,837	)			(14,623	)
Purchases of marketable securities			(17,513	)			(30,865	)
Proceeds from redemption and sales of marketable securities			17,125				19,096
Proceeds from disposal of property and equipment			577				1,046
Other			(236	)			27
Net cash used in investing activities			(11,884	)			(25,319	)
Financing activities:
Proceeds from issuance of stock			1,704				253
Payments on capitalized lease obligations			(83	)			(90	)
Payment of cash dividend			(8,438	)			(7,838	)
Net cash used in financing activities			(6,817	)			(7,675	)
Effect of exchange rate on cash and cash equivalents			(875	)			(2,986	)
Net increase (decrease) in cash and cash equivalents			13,235				(9,873	)
Cash and cash equivalents at beginning of period			111,479				90,962
Cash and cash equivalents at end of period		$	124,714			$	81,089

---

 

Note 1

The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all information and notes required by generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the Notes to Consolidated Financial Statements included in the Company’s  Annual Report on Form 10-K  for the year ended September 29, 2018.

 

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position and the results of operations and cash flows.

 

The results of operations for the three months ended December 29, 2018 and December 30, 2017 are not necessarily indicative of results for the full year. Sales of our frozen beverages and frozen juice bars and ices are generally higher in the third and fourth quarters due to warmer weather.

 

Certain prior year financial statement amounts have been reclassified to be consistent with the presentation for the current year.

 

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 consolidated financial statements and the notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 29, 2018.

 

 

Note 2

 

Revenue Recognition

 

We adopted the new revenue recognition guidance on the first day of our fiscal 2019 year using a modified retrospective approach; however, we did not record a cumulative-effect adjustment from initially applying the standard as the adoption did not have a material impact on our financial position or results of operations. We completed a review of customer contracts and evaluated the impact of the new standard on certain common practices currently employed by us. We also finalized our assessment of the impact on our accounting policies, processes, system requirements, internal controls and disclosures.

 

 

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.

 

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:

 

                     

Disaggregation of Revenue

 

See Note 9 for disaggregation of our net sales by class of similar product and type of customer.

 

Allowance for Doubtful Receivables

 

We provide an allowance for doubtful receivables after taking into consideration historical experience and other factors. The allowance for doubtful receivables was $490,000 and $400,000 at December 29, 2018 and September 29, 2018, respectively.

 

 

 

Note 3

Depreciation of equipment and buildings is provided for by the straight-line method over the assets’ estimated useful lives. Amortization of improvements is provided for by the straight-line method over the term of the lease or the assets’ estimated useful lives, whichever is shorter. Licenses and rights, customer relationships and non-compete agreements arising from acquisitions are amortized by the straight-line method over periods ranging from 2 to 20 years. Depreciation expense was $10,774,000 and $11,152,000 for the three months ended December 29, 2018 and December 30, 2017, respectively.

 

 

Note 4

Basic earnings per common share (EPS) excludes dilution and is computed by dividing income available to common shareholders by the weighted average common shares outstanding during the period. Diluted EPS takes into consideration the potential dilution that could occur if securities (stock options) or other contracts to issue common stock were exercised and converted into common stock. Our calculation of EPS is as follows:

 

 

500 anti-dilutive shares have been excluded in the computation of EPS for the three months ended December 29, 2018.

 

 

1,000 anti-dilutive shares have been excluded in the computation of EPS for the three months ended December 30, 2017.

 

 

 

Note 5

At December 29, 2018, the Company has three stock-based employee compensation plans. Share-based compensation expense was recognized as follows:

 

 

The fair value of each option grant is estimated on the date of grant using the Black-Scholes options-pricing model with the following weighted average assumptions used for grants in fiscal 2019 first three months: expected volatility of 16.8%; risk-free interest rate of 3.0%; dividend rate of 1.2% and expected lives of 5 years.

 

During the fiscal year 2019 three month period, the Company granted 1,000 stock options. The weighted-average grant date fair value of these options was $27.09.

 

During the fiscal year 2018 three month period, the Company granted 1,500 stock options. The weighted-average grant date fair value of these options was $23.14.

 

Expected volatility is based on the historical volatility of the price of our common shares over the past 51 months for 5 year options and 10 years for 10 year options. We use historical information to estimate expected life and forfeitures within the valuation model. The expected term of awards represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Compensation cost is recognized using a straight-line method over the vesting or service period and is net of estimated forfeitures.

 

 

Note 6

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

 

 

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

 

The total amount of gross unrecognized tax benefits is $399,000 and $394,000 on December 29, 2018 and September 29, 2018, 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 December 29, 2018 and September 29, 2018, respectively, the Company has $264,000 and $259,000 of accrued interest and penalties.

In addition to our federal tax return and tax returns for Mexico and Canada, we file tax returns in all states that have a corporate income tax with virtually all open for examination for three to four years.

 

Net earnings for last year’s quarter benefited from a $20.9 million gain on the remeasurement of deferred tax liabilities which was partially offset by a $1.2 million provision for the one time repatriation tax, both of which resulted from the Tax Cuts and Jobs Act enacted in in December 2017. Excluding the deferred tax gain and the one time repatriation tax, our effective tax rate was 28.6% in last year’s quarter. Net earnings in this year’s quarter benefitted by a reduction of approximately $900,000 in tax as the provision for the one time repatriation tax was reduced as the amount recorded last year was an estimate.  Excluding the reduction in the provision for the one time repatriation tax, our effective tax rate was 28.0% in this year’s quarter.    

 

 

Note 7

In May 2014 and in subsequent updates, the FASB issued guidance on revenue recognition which requires that we recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration which we expect to be entitled in exchange for those goods or services. We performed a review of the requirements of the new revenue standard, including reviewing customer contracts and applying the five-step model of this new guidance to each contract category we identified. We adopted this guidance on the first day of our fiscal 2019 year using a modified retrospective approach; however, we did not record a cumulative-effect adjustment from initially applying the standard as the adoption did not have a material impact on our financial position or results of operations. See additional revenue recognition disclosures in Note 2.

 

In January 2016,  the FASB issued guidance which requires an entity to measure equity investments at fair value with changes in fair value recognized in net income , to use the price that would be received by a seller when measuring the fair value of financial instruments for disclosure purposes, and which eliminates the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet.  Under prior guidance, changes in fair value of equity investments available for sale were recognized in Stockholders’ Equity.   We adopted this guidance on the first day of our 2019 fiscal year. The adoption of this guidance on our consolidated financial statements is not material.

 

 

In February 2016, the FASB issued guidance on lease accounting which requires that an entity recognize most leases on its balance sheet.  The guidance retains a dual lease accounting model for purposes of income statement recognition, continuing the distinction between what are currently known as “capital” and “operating” leases for lessees.  This guidance is effective for our fiscal year ended September 2020.  While we continue to evaluate the effect of adopting this guidance on our consolidated financial statements and related disclosures, we expect our operating leases will be subject to the new standard. We will recognize right-of-use assets and operating lease liabilities on our consolidated balance sheets upon adoption, which will increase our total assets and liabilities. We anticipate that the impact of this guidance on our financial statements will be material.

 

 

 

Note 8

Inventories consist of the following:

 

 

 

Note 9

We principally sell our products to the food service and retail supermarket industries. Sales and results of our frozen beverages business are monitored separately from the balance of our food service business because of different distribution and capital requirements. We maintain separate and discrete financial information for the three operating segments mentioned above which is available to our Chief Operating Decision Makers.

 

Our three reportable segments are Food Service, Retail Supermarkets and Frozen Beverages. All inter-segment net sales and expenses have been eliminated in computing net sales and operating income. These segments are described below.

 

 

Food Service

 

The primary products sold by the food service group are soft pretzels, frozen juice treats and desserts, churros, dough enrobed handheld products and baked goods. Our customers in the food service industry include snack bars and food stands in chain, department and discount stores; malls and shopping centers; fast food outlets; stadiums and sports arenas; leisure and theme parks; convenience stores; movie theatres; warehouse club stores; schools, colleges and other institutions. Within the food service industry, our products are purchased by the consumer primarily for consumption at the point-of-sale.

 

Retail Supermarkets

 

The primary products sold to the retail supermarket channel are soft pretzel products – including SUPERPRETZEL, frozen juice treats and desserts including LUIGI’S Real Italian Ice, MINUTE MAID Juice Bars and Soft Frozen Lemonade, WHOLE FRUIT frozen fruit bars and sorbet, PHILLY SWIRL cups and sticks, ICEE Squeeze-Up Tubes and dough enrobed handheld products including PATIO burritos. Within the retail supermarket channel, our frozen and prepackaged products are purchased by the consumer for consumption at home.

 

Frozen Beverages

 

We sell frozen beverages and related products to the food service industry primarily under the names ICEE, SLUSH PUPPIE and PARROT ICE in the United States, Mexico and Canada. We also provide repair and maintenance service to customers for customers’ owned equipment.

 

 

The Chief Operating Decision Maker for Food Service and Retail Supermarkets and the Chief Operating Decision Maker for Frozen Beverages monthly review detailed operating income statements and sales reports in order to assess performance and allocate resources to each individual segment. Sales and operating income are key variables monitored by the Chief Operating Decision Makers and management when determining each segment’s and the company’s financial condition and operating performance. In addition, the Chief Operating Decision Makers review and evaluate depreciation, capital spending and assets of each segment on a quarterly basis to monitor cash flow and asset needs of each segment. Information regarding the operations in these three reportable segments is as follows:

 

 

 

 

Note 10

Our three reporting units, which are also reportable segments, are Food Service, Retail Supermarkets and Frozen Beverages.

 

The carrying amounts of acquired intangible assets for the Food Service, Retail Supermarkets and Frozen Beverage segments as of December 29, 2018 and September 29, 2018 are as follows:

 

 

 

 

Fully amortized intangible assets have been removed from the December 29, 2018 amounts.

 

 

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 29, 2018 and December 30, 2017 was $855,000 and $819,000, respectively.

 

Estimated amortization expense for the next five fiscal years is approximately $3,300,000 in 2019, $3,000,000 in 2020, $2,400,000 in 2021, and $2,300,000 in 2022 and in 2023. The weighted amortization period of the intangible assets is 10.7 years.

 

Goodwill 

 

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

 

 

 

 

Note 11

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

 

Level 1

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

 

Level 2

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

 

Level 3

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

 

 

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

 

The amortized cost, unrealized gains and losses, and fair market values of our investment securities held to maturity at December 29, 2018 are summarized as follows:

 

 

The amortized cost, unrealized gains and losses, and fair market values of our investment securities available for sale at December 29, 2018 are summarized as follows:

 

 

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 2019, 2020 and 2025 and then income is based on a spread above LIBOR if the securities are not called. The mutual funds and Fixed-to-Floating Perpetual Preferred Stock do not have contractual maturities; however, we classify them as long term assets as it is our intent to hold them for a period of over one year, although we may sell some or all of them depending on presently unanticipated needs for liquidity or market conditions. The corporate bonds generate fixed income to maturity dates in 2019 through 2021, with $91 million maturing within 2 years. Our expectation is that we will hold the corporate bonds to their maturity dates and redeem them at our amortized cost.

 

 

The amortized cost, unrealized gains and losses, and fair market values of our investment securities held to maturity at September 29, 2018 are summarized as follows:

 

 

The amortized cost, unrealized gains and losses, and fair market values of our investment securities available for sale at September 29, 2018 are summarized as follows:

 

 

The amortized cost and fair value of the Company’s held to maturity securities by contractual maturity at December 29, 2018 and September 29, 2018 are summarized as follows:

 

 

Proceeds from the redemption and sale of marketable securities were $17,125,000 in the three months ended December 29, 2018 and $19,096,000 in the three months ended December 30, 2017, respectively. Realized gains of $398 were recorded in the three months ended December 29, 2018 and realized gains of $7,558 were recorded in the three months ended December 30, 2017. We use the specific identification method to determine the cost of securities sold. Under new accounting guidance adopted on the first day of this fiscal year, recognized unrealized losses on marketable securities of $1,027,000 were recorded in the three months ended December 29, 2018.

 

 

 

Note 12 Changes to the components of accumulated other comprehensive loss are as follows:

 

 

 

 

 

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