Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - INVENTURE FOODS, INC.Financial_Report.xls
EX-31.1 - EX-31.1 - INVENTURE FOODS, INC.a14-20645_1ex31d1.htm
EX-32.1 - EX-32.1 - INVENTURE FOODS, INC.a14-20645_1ex32d1.htm
EX-31.2 - EX-31.2 - INVENTURE FOODS, INC.a14-20645_1ex31d2.htm

Table of Contents

 

 

 

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 quarterly period ended September 27, 2014

 

OR

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

For the transition period from                to

 

Commission File Number: 001-14556

 

INVENTURE FOODS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware

 

86-0786101

(State or other jurisdiction of incorporation or

 

(I.R.S. Employer

organization)

 

Identification No.)

 

 

 

5415 East High Street, Suite #350 Phoenix, Arizona

 

85054

(Address of Principal Executive Offices)

 

(Zip Code)

 

Registrant’s Telephone Number, including area code:  (623) 932-6200

 

Indicate by check 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 x        No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

 

Yes x             No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer o

 

Accelerated filer x

 

Non-accelerated filer o

 

Smaller reporting company o

 

 

 

 

(Do not check if a

 

 

 

 

 

 

smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

 

Yes o          No x

 

As of November 3, 2014, the total number of shares outstanding of the registrant’s common stock was 19,537,341 shares.

 

 

 



Table of Contents

 

INVENTURE FOODS, INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

 

Table of Contents

 

Part I. FINANCIAL INFORMATION

 

 

 

 

Item 1. Financial Statements — Unaudited

 

 

 

 

 

Condensed Consolidated Balance Sheets (Unaudited) as of September 27, 2014 and December 28, 2013

1

 

Condensed Consolidated Statements of Income (Unaudited) for the quarters and nine months ended September 27, 2014 and September 28, 2013

2

 

Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the quarters and nine months ended September 27, 2014 and September 28, 2013

3

 

Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 27, 2014 and September 28, 2013

4

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

5

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

21

 

 

 

Item 4. Controls and Procedures

21

 

 

 

Part II. OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

22

 

 

 

Item 1A.

Risk Factors

22

 

 

 

Item 6.

Exhibits

22

 

 

 

 

Signatures

23

 



Table of Contents

 

INVENTURE FOODS, INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

 

Our disclosure and analysis in this Quarterly Report on Form 10-Q, including all documents incorporated by reference, includes “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995.  From time to time, we also provide forward-looking statements in other materials we release to the public, as well as oral forward-looking statements.  We have tried, wherever possible, to identify such statements by using words such as “anticipate,” “believe,” “expect,” “intend,” “estimate,” “project,” “may,” “should,” “will,” “likely,” “will likely result,” “will continue,” “future,” “plan,” “target,” “forecast,” “goal,” “observe,” “seek,” “strategy” and other words and terms of similar meaning.  The forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events and financial performance.

 

Forward-looking statements are neither historical facts nor assurances of future performance.  Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to certain risks and uncertainties, including, without limitation, general economic conditions, increases in cost or availability of ingredients, packaging, energy and employees, price competition and industry consolidation, ability to execute strategic initiatives, product recalls or safety concerns, disruptions of supply chain or information technology systems, customer acceptance of new products and changes in consumer preferences, food industry and regulatory factors, interest rate risks, dependence upon major customers, dependence upon existing and future license agreements, the possibility that we will need additional financing due to future operating losses or in order to implement the Company’s business strategy, acquisition and divestiture-related risks, volatility of the market price of the Company’s common stock, and those other risks and uncertainties discussed herein, that could cause actual results to differ materially from historical results or those anticipated.  In light of these risks and uncertainties, there can be no assurance that the forward-looking information contained in this Quarterly Report on Form 10-Q will in fact transpire or prove to be accurate.  Readers are cautioned to consider the specific risk factors described herein and in “Risk Factors” in our Annual Report on Form 10-K/A for the fiscal year ended December 28, 2013 and any subsequent Form 10-Q and Form 8-K reports, and not to place undue reliance on the forward-looking statements contained herein, which speak only as of the date hereof.

 

The Company undertakes no obligation to update or publicly revise any forward-looking statement whether as a result of new information, future developments or otherwise.  All subsequent written or oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by this paragraph.  You are advised, however, to consult any further disclosures we make on related subjects in our Form 10-Q and Form 8-K reports and our other filings with the SEC.  Also note that we provide a cautionary discussion of risks, uncertainties and possibly inaccurate assumptions relevant to our business under “Risk Factors” in the Annual Report on Form 10-K/A for the fiscal year ended December 28, 2013.  We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995.  You should understand it is not possible to predict or identify all such factors.

 



Table of Contents

 

PART I. FINANCIAL INFORMATION

 

Item 1.                   Financial Statements

 

INVENTURE FOODS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per-share data)

(unaudited)

 

 

 

September 27,

 

December 28,

 

 

 

2014

 

2013

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

769

 

$

910

 

Accounts receivable, net of allowance for doubtful accounts of $105 and $219 at September 27, 2014 and December 28, 2013, respectively

 

25,971

 

23,618

 

Inventories

 

70,511

 

43,086

 

Deferred income tax asset

 

724

 

755

 

Other current assets

 

1,479

 

1,223

 

Total current assets

 

99,454

 

69,592

 

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation of $38,274 and $33,880 at September 27, 2014 and December 28, 2013, respectively

 

55,888

 

50,140

 

Goodwill

 

23,064

 

23,064

 

Trademarks and other intangibles, net

 

24,721

 

25,624

 

Other assets

 

1,632

 

1,671

 

Total assets

 

$

204,759

 

$

170,091

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

18,719

 

$

19,380

 

Accrued liabilities

 

22,279

 

10,121

 

Current portion of long-term debt

 

6,998

 

6,110

 

Total current liabilities

 

47,996

 

35,611

 

 

 

 

 

 

 

Long-term debt, less current portion

 

60,851

 

61,865

 

Line of credit

 

20,718

 

3,223

 

Deferred income tax liability

 

4,215

 

4,188

 

Interest rate swaps

 

377

 

526

 

Other liabilities

 

2,760

 

5,525

 

Total liabilities

 

136,917

 

110,938

 

 

 

 

 

 

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

Common stock, $.01 par value; 50,000 shares authorized; 19,900 and 19,845 shares issued and outstanding at September 27, 2014 and December 28, 2013, respectively

 

199

 

198

 

Additional paid-in capital

 

32,405

 

30,960

 

Accumulated other comprehensive loss

 

(154

)

(244

)

Retained earnings

 

35,863

 

28,710

 

 

 

68,313

 

59,624

 

Less: treasury stock, at cost: 368 shares at September 27, 2014 and December 28, 2013

 

(471

)

(471

)

Total shareholders’ equity

 

67,842

 

59,153

 

Total liabilities and shareholders’ equity

 

$

204,759

 

$

170,091

 

 

See accompanying notes to condensed consolidated financial statements (unaudited).

 

1



Table of Contents

 

INVENTURE FOODS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per-share data)

(unaudited)

 

 

 

Quarters Ended

 

Nine months ended

 

 

 

September 27,

 

September 28,

 

September 27,

 

September 28,

 

 

 

2014

 

2013

 

2014

 

2013

 

Net revenues

 

$

72,556

 

$

54,514

 

$

211,917

 

$

156,728

 

Cost of revenues

 

59,630

 

44,458

 

173,972

 

128,711

 

Gross profit

 

12,926

 

10,056

 

37,945

 

28,017

 

Selling, general and administrative expenses

 

7,570

 

6,395

 

24,992

 

20,241

 

Operating income

 

5,356

 

3,661

 

12,953

 

7,776

 

Interest expense, net

 

646

 

250

 

1,900

 

641

 

Income before income tax provision

 

4,710

 

3,411

 

11,053

 

7,135

 

Income tax provision

 

1,626

 

1,263

 

3,900

 

2,524

 

Net income

 

$

3,084

 

$

2,148

 

$

7,153

 

$

4,611

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.16

 

$

0.11

 

$

0.37

 

$

0.24

 

Diluted

 

$

0.15

 

$

0.11

 

$

0.36

 

$

0.23

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares:

 

 

 

 

 

 

 

 

 

Basic

 

19,530

 

19,473

 

19,478

 

19,329

 

Diluted

 

20,014

 

19,843

 

19,966

 

19,746

 

 

See accompanying notes to condensed consolidated financial statements (unaudited).

 

2



Table of Contents

 

INVENTURE FOODS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

 

 

 

Quarters Ended

 

Nine months ended

 

 

 

September 27,
 2014

 

September 28,
 2013

 

September 27,
 2014

 

September 28,
 2013

 

Net income

 

$

3,084

 

$

2,148

 

$

7,153

 

$

4,611

 

Change in fair value of interest rate swaps, net of tax

 

44

 

17

 

90

 

115

 

Comprehensive income

 

$

3,128

 

$

2,165

 

$

7,243

 

$

4,726

 

 

See accompanying notes to condensed consolidated financial statements (unaudited).

 

3



Table of Contents

 

INVENTURE FOODS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

Nine months ended

 

 

 

September 27,
 2014

 

September 28,
 2013

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

7,153

 

$

4,611

 

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

 

 

 

 

 

Depreciation

 

4,942

 

4,023

 

Amortization

 

903

 

87

 

Provision for bad debts

 

15

 

(12

)

Deferred income taxes

 

362

 

747

 

Excess income tax benefit from exercise of stock options

 

(304

)

(544

)

Share-based compensation expense

 

1,195

 

626

 

Loss on disposition of equipment

 

124

 

16

 

Contingent consideration revaluation

 

(2,653

)

 

Change assets and liabilities, net of effects from acquisitions:

 

 

 

 

 

Accounts receivable

 

(2,368

)

(4,669

)

Inventories

 

(27,425

)

(13,162

)

Other assets and liabilities

 

(144

)

274

 

Accounts payable and accrued liabilities

 

12,628

 

8,293

 

Net cash (used in) provided by operating activities

 

(5,572

)

290

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchase of equipment

 

(10,814

)

(7,056

)

Acquisition of Willamette Valley Fruit Company

 

 

(8,472

)

Payment of additional purchase price consideration for Willamette Valley Fruit Company

 

(1,250

)

 

Net cash used in investing activities

 

(12,064

)

(15,528

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Net borrowings on line of credit

 

17,495

 

7,263

 

Proceeds from issuance of common stock under equity award plans

 

154

 

133

 

Payments made on capital lease obligations

 

(349

)

(365

)

Borrowings on term loans

 

4,515

 

10,048

 

Payments made on long-term debt

 

(4,292

)

(1,445

)

Payment of deferred financing fees

 

(124

)

(96

)

Excess income tax benefit from exercise of stock options

 

304

 

544

 

Payment of payroll taxes on stock-based compensation through shares withheld

 

(208

)

(444

)

Net cash provided by financing activities

 

17,495

 

15,638

 

Net (decrease) increase in cash and cash equivalents

 

(141

)

400

 

Cash and cash equivalents at beginning of period

 

910

 

419

 

Cash and cash equivalents at end of period

 

$

769

 

$

819

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

Cash paid during the period for interest

 

$

1,367

 

$

547

 

Cash paid during the period for income taxes

 

$

3,136

 

$

121

 

 

 

 

 

 

 

Supplemental disclosures of non-cash investing and financing transactions:

 

 

 

 

 

Capital lease obligations for the acquisition of property and equipment

 

$

 

$

16

 

 

See accompanying notes to condensed consolidated financial statements (unaudited).

 

4



Table of Contents

 

INVENTURE FOODS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

1.                                      Organization and Summary of Significant Accounting Policies

 

Inventure Foods, Inc., a Delaware corporation (referred to herein as the “Company,” referred to as “we,” “our” or “us”), is a leading marketer and manufacturer of healthy/natural and indulgent specialty snack food brands with more than $215 million in annual net revenues for fiscal year 2013.

 

We specialize in two primary product categories: (1) healthy/natural food products and (2) indulgent specialty snack products.  We sell our products nationally through a number of channels including: grocery, natural, mass merchandisers, drug, club, value, vending, food service, convenience stores and international.  Our goal is to have a diversified portfolio of brands, products, customers and distribution channels.

 

In our healthy/natural food category, products include Rader Farms® frozen berries, Boulder Canyon® brand kettle cooked potato chips, Willamette Valley Fruit CompanyTM brand frozen berries, Fresh FrozenTM brand frozen vegetables, Jamba® branded blend-and-serve smoothie kits under license from Jamba Juice Company, Seattle’s Best Coffee® Frozen Coffee Blends branded blend-and-serve frozen coffee beverage under license from Seattle’s Best Coffee, LLC and private label frozen fruit and healthy/natural snacks.

 

In our indulgent specialty snack food category, products include T.G.I. Friday’s® brand snacks under license from T.G.I. Friday’s Inc. (“T.G.I. Friday’s”), Nathan’s Famous® brand snack products under license from Nathan’s Famous Corporation, Vidalia® brand snack products under license from Vidalia Brands, Inc., Poore Brothers® kettle cooked potato chips, Bob’s Texas Style® kettle cooked chips, and Tato Skins® brand potato snacks.  We also manufacture private label snacks for certain grocery retail chains and co-pack products for other snack and cereal manufacturers.

 

We operate in two segments: frozen products and snack products.  The frozen products segment includes frozen fruits, vegetables and beverages for sale primarily to groceries, club stores and mass merchandisers.  All products sold under our frozen products segment are considered part of the healthy/natural food category.  The snack products segment includes potato chips, kettle chips, potato crisps, potato skins, pellet snacks, sheeted dough products, cereal and extruded products for sale primarily to snack food distributors and retailers.  The products sold under our snack products segment includes products considered part of the indulgent specialty snack food category, as well as products considered part of the healthy/natural food category.

 

We operate manufacturing facilities in seven locations.  Our frozen berry products are processed in Lynden, Washington, Salem, Oregon and Jefferson, Georgia.  Our frozen berry business grows, processes and markets premium berry blends, raspberries, blueberries and rhubarb and purchases blackberries, cherries, cranberries, strawberries and other fruits from a select network of fruit growers for resale.  The fruit is processed, frozen and packaged for sale and distribution to wholesale customers.  Our frozen vegetable products are processed in Jefferson, Georgia, Thomasville, Georgia and in Salem, Oregon.  Our frozen beverage products are packaged at our Lynden, Washington and Jefferson, Georgia facilities.  We also use third-party processors for certain frozen products and package certain frozen fruits for other manufacturers.  Our snack products are manufactured at our Phoenix, Arizona and Bluffton, Indiana plants, as well as some third-party plants for certain products.

 

Our fiscal year ends on the last Saturday occurring in the month of December of each calendar year.  Accordingly, the third quarter of 2014 commenced June 29, 2014 and ended September 27, 2014.

 

Basis of Presentation

 

The consolidated financial statements for the quarter and nine months ended September 27, 2014 are unaudited and include the accounts of Inventure Foods, Inc. and all of our wholly owned subsidiaries.  All significant intercompany amounts and transactions have been eliminated.  The consolidated financial statements, including the December 28, 2013 consolidated balance sheet data which was derived from audited financial statements, have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all the information and footnotes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”).  In the opinion of management, the condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary in order to make the consolidated financial statements not misleading.  A description of our accounting policies and other financial information is included in the audited financial statements filed with our Annual Report on Form 10-K/A for the fiscal year ended December 28, 2013.  The results of operations for the quarter ended September 27, 2014 are not necessarily indicative of the results expected for the full year.

 

5



Table of Contents

 

INVENTURE FOODS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

Fair Value of Financial Instruments

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”)  in an orderly transaction between market participants at the measurement date.  We classify our investments based upon an established fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurements).  The three levels of the fair value hierarchy are described as follows:

 

Level 1                  Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

 

Level 2                  Quoted prices in markets that are not considered to be active or financial instruments without quoted market prices, but for which all significant inputs are observable, either directly or indirectly;

 

Level 3                  Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

 

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

 

At September 27, 2014 and December 28, 2013, the carrying value of cash, accounts receivable, accounts payable and accrued liabilities approximate fair values since they are short-term in nature.  The carrying value of the long-term debt approximates fair-value based on the borrowing rates currently available to us for long-term borrowings with similar terms.  The following table summarizes the valuation of our financial instruments (in thousands):

 

 

 

 

 

September 27, 2014

 

December 28, 2013

 

Balance Sheet Classification

 

 

 

Interest Rate
Swaps

 

Non-qualified
Deferred
Compensation
Plan
Investments

 

Earn-out
Contingent
Consideration
Obligation

 

Interest Rate
Swaps

 

Non-qualified
Deferred
Compensation
Plan
Investments

 

Earn-out
Contingent
Consideration
Obligation

 

Other assets

 

Level 1

 

$

 

$

653

 

$

 

$

 

$

579

 

$

 

Interest rate swaps

 

Level 2

 

(377

)

 

 

(526

)

 

 

Accrued liabilities

 

Level 3

 

 

 

(120

)

 

 

 

Other liabilities

 

Level 3

 

 

 

(1,830

)

 

 

(5,053

)

 

 

 

 

$

(377

)

$

653

 

$

(1,950

)

$

(526

)

$

579

 

$

(5,053

)

 

Considerable judgment is required in interpreting market data to develop the estimate of fair value of our derivative instruments.  Accordingly, the estimate may not be indicative of the amounts that we could realize in a current market exchange.  The use of different market assumptions or valuation methodologies could have a material effect on the estimated fair value amounts.

 

The Company’s non-qualified deferred compensation plan assets consist of money market and mutual funds invested in domestic and international marketable securities that are directly observable in active markets.

 

The fair value measurement of the earn-out contingent consideration obligation relates to the acquisition of Willamette Valley Fruit Company in May 2013 and Fresh Frozen Foods in November 2013, and is included in accrued liabilities and other long-term liabilities in the consolidated balance sheets.  The fair value measurement is based upon significant inputs not observable in the market.  Changes in the value of the obligation are recorded as income or expense in our consolidated statements of income.  To determine the fair value, we valued the contingent consideration liability based on the expected probability weighted earn-out payments corresponding to the performance thresholds agreed to under the applicable purchase agreements.  The expected earn-out payments were then present valued by applying a discount rate that captures a market participants view of the risk associated with the expected earn-out payments.  During the nine months ended September 27, 2014, we reduced the value of the contingent consideration related to the Fresh Frozen Foods acquisition to $0 due to forecasted reduction in estimated achievement of targets.

 

6



Table of Contents

 

INVENTURE FOODS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

A summary of the activity of the fair value of the measurements using unobservable inputs (Level 3 Liabilities) for the quarter ended September 27, 2014, is as follows (in thousands):

 

 

 

Level 3

 

Balance at December 28, 2013

 

$

5,053

 

Earn-out compensation paid to Willamette Valley Fruit Company

 

(450

)

Fresh Frozen Foods earn-out revaluation

 

(2,653

)

Balance at September 27, 2014

 

$

1,950

 

 

Income Taxes

 

For the quarters ended September 27, 2014 and September 28, 2013, our provisions for income taxes were $1.6 million and $1.3 million, respectively.  The effective tax rate for the third quarter of 2014 was 34.5% compared with 37.0% for the third quarter of 2013.  The change in the effective tax rate is primarily due to an increase in state research and development credits.

 

For the nine months ended September 27, 2014 and September 28, 2013 our provisions for income taxes were $3.9 million and $2.5 million respectively.  Our effective tax rate for the nine months ended September 27, 2014 decreased slightly to 35.3% from 35.4% for the nine months ended September 28, 2013.

 

Earnings Per Common Share

 

Basic earnings per common share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period and includes unvested restricted stock grants.  Diluted earnings per share is calculated by including all dilutive common shares such as stock options.  Under the Financial Accounting Standards Board (“FASB”) ASC 260-10, unvested restricted stock grants that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and, therefore, requires earnings per share to be presented pursuant to the two-class method.  However, the application of this method would have no effect on basic and diluted earnings per common share and is therefore not presented.

 

Options to purchase 46,652 and 19,524 shares of our common stock were excluded from the computation of diluted earnings per share for the quarter and nine months ended September 27, 2014, respectively.  Options to purchase 215,010 and 266,898 shares of our common stock were excluded from the computation of diluted earnings per share for the quarter and nine months ended September 28, 2013, respectively.  These exclusions were made because the options’ exercise prices were greater than the average market price of our common stock for those periods.  Exercises of outstanding stock options or warrants are assumed to occur for purposes of calculating diluted earnings per share for periods in which their effect would not be anti-dilutive.

 

Earnings per common share was computed as follows for the quarters and nine months ended September 27, 2014 and September 28, 2013 (in thousands, except per share data):

 

 

 

Quarters Ended

 

Nine months ended

 

 

 

September 27,
2014

 

September 28,
2013

 

September 27,
2014

 

September 28,
2013

 

Basic Earnings Per Share:

 

 

 

 

 

 

 

 

 

Net income

 

$

3,084

 

$

2,148

 

$

7,153

 

$

4,611

 

Weighted average number of common shares

 

19,530

 

19,473

 

19,478

 

19,329

 

Earnings per common share

 

$

0.16

 

$

0.11

 

$

0.37

 

$

0.24

 

 

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Share:

 

 

 

 

 

 

 

 

 

Net income

 

$

3,084

 

$

2,148

 

$

7,153

 

$

4,611

 

Weighted average number of common shares

 

19,530

 

19,473

 

19,478

 

19,329

 

Incremental shares from assumed conversions of stock options and non-vested shares of restricted stock

 

484

 

370

 

488

 

417

 

Adjusted weighted average number of common shares

 

20,014

 

19,843

 

19,966

 

19,746

 

Earnings per common share

 

$

0.15

 

$

0.11

 

$

0.36

 

$

0.23

 

 

7



Table of Contents

 

INVENTURE FOODS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

Stock Options and Stock-Based Compensation

 

Stock options and other stock based compensation awards expense are adjusted for estimated forfeitures and are recognized on a straight-line basis over the requisite service period of the award, which is currently five to ten years for stock options, and one to three years for restricted stock.  We estimate future forfeiture rates based on our historical experience.

 

Compensation costs related to all share-based payment arrangements, including employee stock options, are recognized in the financial statements based on the fair value method of accounting.  Excess tax benefits related to share-based payment arrangements are classified as cash inflows from financing activities and cash outflows from operating activities.

 

See Note 9 “Shareholders’ Equity” for additional information.

 

Recent Accounting Pronouncements

 

Changes to U.S. GAAP are established by the FASB in the form of accounting standards updates (“ASU”) to the FASB’s Accounting Standards Codification.

 

We consider the applicability and impact of all ASUs.  ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position or results of operations.

 

In 2013, the FASB issued accounting guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists.  The guidance is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013.  The implementation of the guidance did not have a material impact on our consolidated financial position or results of operations.

 

In April 2014, the FASB issued amendments to guidance for reporting discontinued operations and disposals of components of an entity.  The amended guidance requires that a disposal representing a strategic shift that has (or will have) a major effect on an entity’s financial results or a business activity classified as held for sale should be reported as discontinued operations.  The amendments also expand the disclosure requirements for discontinued operations and add new disclosures for individually significant dispositions that do not qualify as discontinued operations.  The amendments are effective prospectively for fiscal years, and interim reporting periods within those years, beginning after December 15, 2014 (early adoption is permitted only for disposals that have not been previously reported).  The implementation of the amended guidance is not expected to have a material impact on our consolidated financial position or results of operations.

 

In May 2014, the FASB issued new accounting guidance related to revenue recognition.  This new standard will replace all current U.S. GAAP guidance on this topic and eliminate all industry-specific guidance.  The new revenue recognition standard provides a unified model to determine when and how revenue is recognized.  The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services.  This guidance will be effective at the beginning of our 2017 fiscal year and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption.  We are evaluating the impact, if any, of adopting this new accounting standard on our financial statements.

 

In June 2014, the FASB issued new guidance related to stock compensation.  The new standard requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition.  As such, the performance target should not be reflected in estimating the grant date fair value of the award.  This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already been rendered.  The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015 and can be applied either prospectively or retrospectively to all awards outstanding as of the beginning of the earliest annual period presented as an adjustment to opening retained earnings.  Early adoption is permitted.  We are evaluating the impact, if any, of adopting this new accounting guidance on our financial statements.

 

8



Table of Contents

 

INVENTURE FOODS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

2.                                      Acquisitions

 

Fiscal 2013 Acquisitions

 

Fresh Frozen Foods

 

On November 8, 2013, we acquired substantially all of the assets, properties and rights of Fresh Frozen Foods, LLC. (“Fresh Frozen Foods”), a branded frozen vegetable processor.  We have included the financial results of Fresh Frozen Foods in our consolidated financial statements from the date of acquisition.  The total purchase price for Fresh Frozen Foods was $38.4 million in cash plus a working capital adjustment of $0.4 million.  We recorded $20.0 million of identifiable intangible assets and $13.2 million of net tangible assets that were assumed as a part of this acquisition based on their estimated fair values, and $8.3 million of residual goodwill.  An additional amount of up to $3.0 million is payable to Fresh Frozen Foods as contingent consideration in the form of an earn-out based on 2014 performance.  At the time of acquisition the contingent consideration was recorded at $2.6 million based on the fair value assessment at acquisition.  Such contingent payment, if any, will be paid during the first quarter of 2015.  As of September 27, 2014, based on year-to-date performance of Fresh Frozen Foods, we concluded there was only a remote possibility that any of the earn-out would be paid.  Accordingly, the liability for contingent consideration was adjusted to $0, which resulted in a decrease in operating expenses of $2.1 million during the third quarter of 2014.  Combined with the $0.5 million decrease in the contingent liability recorded during the second quarter of 2014, the remeasurement of the contingent consideration resulted in a $2.6 million decrease in operating expenses during the nine months ended September 27, 2014.

 

Willamette Valley Fruit Company

 

On May 28, 2013, we enhanced our berry purchase and freezing capabilities by acquiring the berry processing business of Willamette Valley Fruit Company, LLC. (“Willamette Valley Fruit Company”).  We have included the financial results of Willamette Valley Fruit Company in our consolidated financial statements from the date of acquisition.  The total purchase price for Willamette Valley Fruit Company was $9.3 million in cash, plus an additional amount of up to $3.0 million as contingent consideration if certain performance thresholds are met during the seven-year period following the closing of the transaction.  We recorded $3.9 million of identifiable intangible assets and $4.6 million of net tangible assets that were assumed as a part of this acquisition based on their estimated fair values, and $3.1 million of residual goodwill.

 

During the first quarter of 2014 we paid $0.5 million of the contingent consideration upon completion of certain thresholds achieved during the 2013 fiscal period.  As of September 27, 2014, the remaining liability for the contingent consideration totaled approximately $2.0 million.  We also paid $0.8 million in holdbacks upon expiration of certain indemnifications and completion of post-acquisition obligations.

 

Unaudited Consolidated Pro Forma Financial Information

 

The following unaudited pro forma consolidated results of operations (in thousands, except per share data) assumes the Willamette Valley Fruit Company and Fresh Frozen Foods acquisitions occurred as of the beginning of fiscal 2013.  The unaudited pro forma results include estimates and assumptions regarding increased amortization of intangible assets related to the acquisitions, increased interest expense related to debt acquired in order to fund the acquisitions and the related tax effects.  The pro forma results are not necessarily indicative of the actual results that would have occurred had the acquisition been completed as of the beginning of each of the periods presented, nor are they necessarily indicative of future consolidated results.

 

 

 

 

 

Quarter Ended

 

Nine Months Ended

 

 

 

 

 

September 28,
2013

 

September 28,
2013

 

Net revenues

 

As reported

 

$

54,514

 

$

156,728

 

 

 

pro forma

 

$

68,860

 

$

205,357

 

 

 

 

 

 

 

 

 

Net income

 

As reported

 

$

2,148

 

$

4,611

 

 

 

pro forma

 

$

2,747

 

$

6,097

 

 

 

 

 

 

 

 

 

Diluted earnings per share

 

As reported

 

$

0.11

 

$

0.23

 

 

 

pro forma

 

$

0.14

 

$

0.31

 

 

9



Table of Contents

 

INVENTURE FOODS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

3.                                      Inventories

 

Inventories consisted of the following (in thousands):

 

 

 

September 27,
2014

 

December 28,
 2013

 

Finished goods

 

$

30,217

 

$

18,392

 

Raw materials

 

40,294

 

24,694

 

 

 

$

70,511

 

$

43,086

 

 

4.                                      Goodwill, Trademarks and Other Intangibles

 

Goodwill, trademarks and other intangibles, net consisted of the following (in thousands):

 

 

 

Estimated
Useful Life

 

September 27,
2014

 

December 28,
2013

 

Goodwill:

 

 

 

 

 

 

 

Inventure Foods

 

 

 

$

5,986

 

$

5,986

 

Rader Farms

 

 

 

5,630

 

5,630

 

Willamette Valley Fruit Company

 

 

 

3,147

 

3,147

 

Fresh Frozen Foods

 

 

 

8,301

 

8,301

 

Total Goodwill

 

 

 

$

23,064

 

$

23,064

 

 

 

 

 

 

 

 

 

Trademarks:

 

 

 

 

 

 

 

Inventure Foods

 

 

 

$

896

 

$

896

 

Rader Farms

 

 

 

1,070

 

1,070

 

Willamette Valley Fruit Company

 

 

 

740

 

740

 

Fresh Frozen Foods

 

 

 

9,475

 

9,475

 

 

 

 

 

 

 

 

 

Other intangibles:

 

 

 

 

 

 

 

Rader Farms - Customer relationship, gross carrying amount

 

10 years

 

100

 

100

 

Rader Farms - Customer relationship, accum. amortization

 

 

 

(73

)

(66

)

Willamette Valley Fruit Company - Customer relationship, gross carrying amount

 

10 years

 

3,200

 

3,200

 

Willamette Valley Fruit Company - Customer relationship, accum. amortization

 

 

 

(400

)

(160

)

Fresh Frozen Foods - Customer relationship, gross carrying amount

 

12 years

 

10,487

 

10,487

 

Fresh Frozen Foods - Customer relationship, accum. amortization

 

 

 

(774

)

(118

)

Total trademarks and other intangibles, net

 

 

 

$

24,721

 

$

25,624

 

 

Our amortization expense related to these intangibles was $0.3 million and $0.9 million for the quarter and nine months ended September 27, 2014 respectively, and $83,000 and $87,000 for the quarter and nine months ended September 28, 2013, respectively.

 

Goodwill and trademarks are reviewed for impairment annually in the fourth fiscal quarter, or more frequently if impairment indicators arise.  We believe the carrying values of our intangible assets are appropriate as of September 27, 2014.

 

10



Table of Contents

 

INVENTURE FOODS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

5.                                      Accrued Liabilities

 

Accrued liabilities consisted of the following (in thousands):

 

 

 

September 27,
2014

 

December 28,
2013

 

Accrued payroll and payroll taxes

 

$

2,833

 

$

1,070

 

Accrued royalties and commissions

 

994

 

1,078

 

Accrued advertising and promotion

 

956

 

1,610

 

Accrued berry purchase payments

 

13,082

 

2,971

 

Accrued other

 

4,414

 

3,392

 

 

 

$

22,279

 

$

10,121

 

 

6.                                      Long-Term Debt

 

Our long-term debt consists of the following (in thousands):

 

 

 

September 27,
2014

 

December 28,
2013

 

Senior secured term loan due quarterly through November 2018

 

$

56,175

 

$

60,000

 

Equipment term loan B due monthly through September 2020

 

1,330

 

1,481

 

Equipment term loan, Rader Farms, due monthly through August 2019

 

2,550

 

 

Equipment term loan, Willamette Valley, due monthly through August 2019

 

1,893

 

 

Bluffton, IN mortgage loan due monthly through December 2016

 

1,849

 

1,916

 

Lynden, WA real estate term loan due monthly through July 2017

 

2,625

 

2,805

 

Capital lease obligations, primarily due September 2017

 

1,427

 

1,773

 

 

 

67,849

 

67,975

 

Less: current portion of long-term debt

 

(6,998

)

(6,110

)

Long-term debt, less current portion

 

$

60,851

 

$

61,865

 

 

In August 2014, we entered into two separate equipment term loans with Banc of America Leasing & Capital LLC; one for $2.6 million to finance equipment to be used at the Company’s Rader Farms facility, and the other for $1.9 million to finance equipment to be used at Willamette Valley Fruit Company.  Both of these equipment term loans accrue interest at a rate of 2.35% and will be repaid over 60 recurring monthly payments commencing September 15, 2014.

 

On November 8, 2013, we entered into a $60.0 million senior secured term loan and a new $30.0 million senior secured revolving line of credit with a syndicate of lenders led by U.S. Bank National Association (“U.S. Bank”), pursuant to a Credit Agreement, a Security Agreement and certain other customary ancillary agreements (the “Senior Credit Facility”).  To facilitate the Senior Credit Facility, the Company and its wholly owned subsidiaries entered into a Letter Amendment Agreement, dated as of November 8, 2013, with U.S. Bank (the “Letter Amendment”).  The Letter Amendment reconciled the terms of the Senior Credit Facility with the terms of the Loan and Security Agreement and that certain Loan Agreement (term loan), dated as of November 30, 2006, by and between the Company’s wholly owned subsidiary, La Cometa Properties, Inc., and U.S. Bank.

 

The borrowing capacity available to us under the Senior Credit Facility consists of notes representing:

 

·                  A revolving line of credit up to $30.0 million, maturing on November 8, 2018.  At September 27, 2014, $20.7 million was outstanding and $4.1 million was available under the line of credit.  All borrowings under the revolving line of credit bear interest at either (i) the prime rate of interest announced by U.S. Bank from time to time or (ii) LIBOR, plus the LIBOR Rate Margin (as defined in the revolving credit facility note) as adjusted.

 

·                  An equipment term loan B due September 2020 with interest at 3.12%.  On August 14, 2013, we entered into an equipment term loan B to finance equipment located at Willamette Valley Fruit Company.

 

11



Table of Contents

 

INVENTURE FOODS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

The Senior Credit Facility maintained the terms and borrowing capacity of the prior agreement with respect to the following:

 

·                  Bluffton, Indiana mortgage loan due December 2016; interest rate at 30 day LIBOR plus 165 basis points, fixed through a swap agreement to 6.85%; collateralized by land and a building in Bluffton, Indiana.

 

·                  Lynden, Washington real estate term loan due July 2017; interest at LIBOR plus 165 basis points; fixed through a swap agreement to 4.28%; secured by a leasehold interest in the real property in Lynden, Washington.

 

As is customary in such financings, U.S. Bank, on behalf of the syndicate of lenders, may terminate the syndicate’s commitments, accelerate the repayment of amounts outstanding and exercise other remedies upon the occurrence of an event of default (as defined in the Senior Credit Facility), subject, in certain instances, to the expiration of an applicable cure period.  The Senior Credit Facility requires us to maintain compliance with certain financial covenants, including a minimum fixed charge coverage ratio and a leverage ratio.  At September 27, 2014, we were in compliance with all of the financial covenants.

 

Interest Rate Swaps

 

To manage exposure to changing interest rates, we selectively enter into interest rate swap agreements.  Our interest rate swaps qualify for and are designated as cash flow hedges.  Changes in the fair value of a swap that is highly effective and that is designated and qualifies as a cash flow hedge to the extent that the hedge is effective, are recorded in other comprehensive income.

 

We entered into an interest rate swap in 2006 to convert the interest rate of the mortgage loan to purchase the Bluffton, Indiana plant from the contractual rate of 30 day LIBOR plus 165 basis points to a fixed rate of 6.85%.  The swap has a fixed pay-rate of 6.85% and a notional amount of approximately $1.8 million at September 27, 2014 and expires in December 2016. The interest rate swap had a fair value of $0.2 million at September 27, 2014, which is recorded as a liability on the accompanying condensed consolidated balance sheet.  The swap value was determined in accordance with the fair value measurement guidance discussed earlier using Level 2 observable inputs and approximates the loss that would have been realized if the contract had been settled on September 27, 2014.

 

We entered into another interest rate swap in January 2008 to effectively convert the interest rate on the real estate term loan to a fixed rate of 4.28%.  The interest rate swap is structured with decreasing notional amounts to match the expected pay down of the debt.  The notional value of the swap at September 27, 2014 was $2.6 million.  The interest rate swap is accounted for as a cash flow hedge derivative and expires in July 2017.  The interest rate swap had a fair value of $0.2 million at September 27, 2014, which is recorded as a liability on the accompanying condensed consolidated balance sheet.  This value was determined in accordance with the fair value measurement guidance discussed earlier using Level 2 observable inputs and approximates the loss that would have been realized if the contract had been settled on September 27, 2014.

 

7.                                      Commitments and Contingencies

 

Contractual

 

Our future contractual obligations consist principally of long-term debt, operating leases, minimum commitments regarding third-party warehouse operations services, forward purchase agreements and remaining minimum royalty payments due licensors pursuant to brand licensing agreements.

 

In order to mitigate the risks of volatility in commodity markets to which we are exposed, we have entered into forward purchase agreements with certain suppliers based on market prices, forward price projections and expected usage levels.  Our purchase commitments for certain ingredients, packaging materials and energy are generally less than 12 months.

 

Legal Proceedings

 

We are periodically a party to various lawsuits arising in the ordinary course of business.  Management believes, based on discussions with legal counsel, that the resolution of any such lawsuits, individually and in the aggregate, will not have a material adverse effect on our financial position or results of operations.

 

Under our license agreement with the Jamba Juice Company (“Jamba Juice”), we are obligated and have agreed to indemnify and defend Jamba Juice in the two matters identified below, and Jamba Juice has tendered defense of these matters to us.

 

12



Table of Contents

 

INVENTURE FOODS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

In March 2012, we learned that Jamba Juice was named as a defendant in a putative class action filed in the Federal Court for the North District of California and captioned Anderson v. Jamba Juice Company (the “Anderson Matter”).  The plaintiff purports to represent a class of individuals who purchased make-at-home smoothie kits from Jamba Juice, and alleges that such smoothie kits contain unnaturally processed, synthetic and/or non-natural ingredients and that use of the words “All Natural” on the labels of these smoothie kits is unfair and fraudulent and violates various false advertising and unfair competition laws.  The Anderson Matter is one of several “all natural” lawsuits recently brought against various food manufacturers and distributors in California.  In an amended complaint, the plaintiff also alleged violations of the federal Magnuson-Moss Warranty Act, which were dismissed by the court in August 2012.  In a second amended complaint filed in September 2012, we were added as a defendant.  Pursuant to the parties’ stipulation, on September 3, 2013 the court dismissed the Anderson Matter.

 

On June 28, 2013, a class action complaint against Jamba Juice and the Company, captioned Lilly v. Jamba Juice Company et al (the “Lilly Matter”), was filed in the Federal Court for the Northern District of California, with nearly identical allegations as those made in the Anderson Matter, except that the complaint also alleges that the smoothie kits contain two additional allegedly non-natural ingredients.  The plaintiffs in this new action are represented by the same counsel that represented the plaintiff in the Anderson Matter.  While we currently believe the “all natural” statement on the smoothie kits are not misleading and in full compliance with FDA guidelines, we are investigating the claims asserted in the Lilly Matter, and intend to vigorously defend against them.  On September 17, 2013, we filed a motion to dismiss, seeking to dismiss plaintiffs’ claims as to gelatin and the Orange Dream Machine smoothie kit.  Our motion was denied in November 2013.   On February 3, 2014, the plaintiffs filed a motion to certify a class of all persons in California who bought certain Jamba Juice smoothie kits.  On September 18, 2014, the court issued an order granting class certification solely for purposes of determining liability and denying certification for purposes of damages.  The court requested further briefing on the question of whether it has jurisdiction to certify a class for purposes of granting injunctive relief.   Following mediation, the basic terms of a proposed class settlement were reached and a term sheet was signed, which remains subject to court approval.  We anticipate that a full settlement agreement will be completed by the end of November 2014 and a motion to approve will be filed with the court.  If approved by the court, a settlement class will be certified for injunctive relief only, requiring the Company to remove the “all natural” designation on the labels of the challenged products.  The Company would pay $5,000 to each of the two individual plaintiffs and up to $425,000 to plaintiffs’ counsel for fees and costs.

 

On February 13, 2014, the Company was sued in two putative class actions filed by Vanessa Montantes alleging that it recorded telephone calls made to its consumer affairs telephone number without obtaining consent to recording as allegedly required by California law.  One of the actions was filed in California State Court and captioned Vanessa Montantes v. Inventure Foods, Inc. doing business as Boulder Canyon Natural Foods, Superior Court for the State of California for the County of Los Angeles Case No. BC536218.  This state court action was dismissed by the plaintiff within a few days of its original filing date.  The other action was filed in Federal Court and captioned Vanessa Montantes v. Inventure Foods d/b/a Boulder Canyon Natural Foods, United States District Court for the Central District of California Case No. CV14-1128 MWF (RZx).  The Company filed a motion to dismiss the complaint on April 21, 2014, which was denied on June 9, 2014.  The Company also demanded indemnity from EMS, Inc., the independent contractor that answered the consumer affairs calls, but EMS, Inc. has not agreed to indemnify the Company.  On July 15, 2014, plaintiff filed a First Amended Complaint adding EMS, Inc. as a defendant.  The Company answered the First Amended Complaint on August 1, 2014.   The Court has set a scheduling conference for November 17, 2014.

 

8.                                      Business Segments

 

Our operations consist of two reportable segments: frozen products and snack products.  The frozen products segment includes frozen fruits, vegetables and beverages for sale primarily to groceries, club stores and mass merchandisers.  The snack products segment includes potato chips, kettle chips, potato crisps, potato skins, pellet snacks, sheeted dough products, cereal and extruded products for sale primarily to snack food distributors and retailers.  Our reportable segments offer different products and services.  The majority of our revenues are attributable to external customers in the United States.  We also sell to external customers internationally, however, the revenues attributable to such customers are immaterial.  All of our assets are located in the United States.

 

13



Table of Contents

 

INVENTURE FOODS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

We do not allocate assets, selling, general and administrative expenses, income taxes or other income and expense to our reportable segments.  The following tables present information about our reportable segments for the quarters and nine months ended September 27, 2014 and September 28, 2013 (in thousands):

 

 

 

Frozen
Products

 

Snack
Products

 

Consolidated

 

Quarter ended September 27, 2014

 

 

 

 

 

 

 

Net revenues from external customers

 

$

46,123

 

$

26,433

 

$

72,556

 

Depreciation and amortization included in segment gross profit

 

562

 

690

 

1,252

 

Segment gross profit

 

7,846

 

5,080

 

12,926

 

Goodwill

 

17,078

 

5,986

 

23,064

 

 

 

 

 

 

 

 

 

Quarter ended September 28, 2013

 

 

 

 

 

 

 

Net revenues from external customers

 

$

27,480

 

$

27,034

 

$

54,514

 

Depreciation and amortization included in segment gross profit

 

306

 

584

 

890

 

Segment gross profit

 

6,221

 

3,835

 

10,056

 

Goodwill

 

8,777

 

5,986

 

14,763

 

 

 

 

 

 

 

 

 

Nine months ended September 27, 2014

 

 

 

 

 

 

 

Net revenues from external customers

 

$

133,916

 

$

78,001

 

$

211,917

 

Depreciation and amortization included in segment gross profit

 

1,541

 

1,898

 

3,439

 

Segment gross profit

 

22,788

 

15,157

 

37,945

 

Goodwill

 

17,078

 

5,986

 

23,064

 

 

 

 

 

 

 

 

 

Nine months ended September 28, 2013

 

 

 

 

 

 

 

Net revenues from external customers

 

$

82,037

 

$

74,691

 

$

156,728

 

Depreciation and amortization included in segment gross profit

 

842

 

1,603

 

2,445

 

Segment gross profit

 

15,615

 

12,402

 

28,017

 

Goodwill

 

8,777

 

5,986

 

14,763

 

 

The following table reconciles reportable segment gross profit to our consolidated income before income tax provision for the quarters and nine months ended September 27, 2014 and September 28, 2013 (in thousands):

 

 

 

Quarters Ended

 

Nine months ended

 

 

 

September 27,
2014

 

September 28,
2013

 

September 27,
2014

 

September 28,
2013

 

Segment gross profit

 

$

12,926

 

$

10,056

 

$

37,945

 

$

28,017

 

Unallocated amounts:

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

(7,570

)

(6,395

)

(24,992

)

(20,241

)

Interest expense, net

 

(646

)

(250

)

(1,900

)

(641

)

Income before income tax provision

 

$

4,710

 

$

3,411

 

$

11,053

 

$

7,135

 

 

9.                                      Shareholders’ Equity

 

The Company’s Amended and Restated 2005 Equity Incentive Plan (the “2005 Plan”) was approved at our 2005 Annual Meeting of Stockholders and initially reserved for issuance of 410,518 shares of our common stock, which was the number of reserved but unissued shares available for issuance under the 1995 Plan.  The number of shares of our common stock reserved for issuance has been increased since 2005 to a total of 2,710,518 as of the date of this filing, pursuant to subsequent amendments to the 2005 Plan approved by our stockholders.  If any shares of our common stock subject to awards granted under the 2005 Plan are canceled, those shares will be available for future awards under the 2005 Plan.  The 2005 Plan expires in May 2015.  Awards granted under the 2005 Plan may include: nonqualified stock options, incentive stock options, restricted stock, restricted stock units, stock appreciation rights, performance units and stock-reference awards.  We have authorized 50,000 shares preferred stock, $100 par value (“Preferred Stock”), none of which is outstanding.  We may issue such shares of Preferred Stock in the future without stockholder approval.

 

14



Table of Contents

 

INVENTURE FOODS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

Restricted Common Stock

 

During the three months ended September 27, 2014 and September 28, 2013, we recorded total share-based compensation expense from restricted stock shares and restricted stock units of $311,000 and $101,000, respectively.  During the nine months ended September 27, 2014 and September 28, 2013, we recorded total share-based compensation expense from restricted stock of $769,000 and $196,000, respectively.

 

The following table summarizes activities related to restricted shares for the nine months ended September 27, 2014:

 

 

 

Number

 

Weighted
Average Grant
Date Fair Value

 

Balance at December 28, 2013

 

314,350

 

$

5.82

 

Granted

 

25,000

 

$

12.78

 

Vested

 

(64,789

)

$

4.80

 

Forfeited

 

(65,961

)

$

4.09

 

Balance at September 27, 2014

 

208,600

 

$

7.52

 

 

As of September 27, 2014 the total unrecognized costs related to non-vested restricted stock shares was $0.6 million, which is expected to be recognized over a weighted average period of 0.89 years.  This expected compensation expense does not reflect any new awards, or modifications to existing awards, that could occur in the future.

 

The following table summarizes activities related to restricted stock units for the nine months ended September 27, 2014:

 

 

 

Number

 

Weighted
Average Grant
Date Fair Value

 

Balance at December 28, 2013

 

 

$

 

Granted

 

144,748

 

$

13.21

 

Vested

 

 

$

 

Forfeited

 

 

$

 

Balance at September 27, 2014

 

144,748

 

$

13.21

 

 

As of September 27, 2014 the total unrecognized costs related to non-vested restricted stock units granted was $1.6 million, which is expected to be recognized over a weighted average period of 2.74 years.  This expected compensation expense does not reflect any new awards, or modifications to existing awards, that could occur in the future.

 

Options

 

We recorded total share-based compensation expense from stock options of approximately $140,000 and $144,000 during the quarters ended September 27, 2014 and September 28, 2013, respectively.  We recorded total share-based compensation expense from stock options of approximately $427,000 and $430,000 during the nine months ended September 27, 2014 and September 28, 2013, respectively.

 

The following table summarizes stock option activity during the nine months ended September 27, 2014:

 

 

 

Options
Outstanding

 

Weighted
Average
Exercise Price

 

Aggregate
Intrinsic Value
(in-the-money
options)

 

Weighted Average
Remaining
Contractual Life
(in years)

 

Outstanding at December 28, 2013

 

934,300

 

$

4.58

 

 

 

 

 

Granted

 

46,652

 

$

12.98

 

 

 

 

 

Exercised

 

(146,900

)

$

3.99

 

 

 

 

 

Forfeited or expired

 

(28,600

)

$

6.25

 

 

 

 

 

Outstanding at September 27, 2014

 

805,452

 

$

5.11

 

$

6,759,080

 

6.64

 

 

As of September 27, 2014, the total unrecognized costs related to non-vested stock option awards granted was $1.0 million, which is expected to be recognized over a weighted average period of 2.59 years.  This expected compensation expense does not reflect any new awards, or modifications to existing awards, that could occur in the future.  The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on our closing stock price of $13.50 as of September 27, 2014, which would have been received by the option holders had all option holders exercised options and sold the underlying shares on that date.

 

15



Table of Contents

 

INVENTURE FOODS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

The following table summarizes information about stock options outstanding and exercisable at September 27, 2014:

 

Range of
Exercise Prices 

 

Options
Outstanding

 

Weighted
Average
Remaining
Contractual

Life
(in years)

 

Weighted
Average
Exercise
Price

 

Options
Exercisable

 

Weighted
Average
Exercise
Price

 

$ 1.70 - $2.40

 

216,600

 

4.27

 

$

1.98

 

214,600

 

$

1.98

 

$ 3.20 - $4.16

 

214,200

 

6.18

 

$

3.83

 

119,800

 

$

3.78

 

$ 4.28 - $7.21

 

320,500

 

8.06

 

$

6.86

 

97,000

 

$

6.82

 

$ 7.61 - $13.21

 

54,152

 

9.56

 

$

12.33

 

3,500

 

$

9.09

 

 

 

805,452

 

6.64

 

$

5.11

 

434,900

 

$

3.61

 

 

 

The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for the quarters and nine months ended September 27, 2014 and September 28, 2013:

 

 

 

Quarters Ended

 

Nine months ended

 

 

 

September 27,
 2014

 

September 28,
2013

 

September 27,
 2014

 

September 28,
2013

 

Expected dividend yield (%)

 

 

 

 

 

Expected volatility (%)

 

 

53-54

 

38-39

 

53-55

 

Risk-free interest rate (%)

 

 

2.0-2.9

 

2.5-2.7

 

1.9-2.9

 

Expected life (years)

 

 

5.5-6.5

 

5.5-6.5

 

5.5-6.5

 

 

The expected dividend yield was based on our expectation of future dividend payouts.  The volatility assumption was based on historical volatility during the time period that corresponds to the expected life of the option.  The expected life (estimated period of time outstanding) of stock options granted was estimated based on historical exercise activity.  The risk-free interest rate assumption was based on the interest rate of U.S. Treasuries on the date the option was granted.

 

16



Table of Contents

 

INVENTURE FOODS, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the other sections of this Quarterly Report on Form Q, and our December 28, 2013 condensed consolidated financial statements and the accompanying notes thereto which are included in our Annual Report on Form 10-K/A filed with the Securities and Exchange Commission on March 14, 2014.  The various sections of this MD&A contain a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described in the “Risk Factors” section of our Annual Report on Form 10-K/A for the fiscal year ended December 28, 2013.  Accordingly, the Company’s actual future results may differ materially from historical results or those currently anticipated.

 

Overview

 

We are a leading marketer and manufacturer of healthy/natural and indulgent specialty snack food brands.  Our products are marketed under a strong portfolio of brands, including T.G.I. Friday’s®, Rader Farms®, Boulder Canyon®, Poore Brothers®, Willamette Valley Fruit CompanyTM, Fresh FrozenTM, Nathan’s Famous ®, Jamba®, Seattle’s Best Coffee®, Bob’s Texas Style®, Vidalia® and Tato Skins®.  T.G.I. Friday’s®, Jamba®, Nathan’s Famous® and Vidalia® are licensed brand names.  We complement our branded product retail sales with private label retail sales and co-packing arrangements.

 

This MD&A is intended to assist in the understanding of our condensed consolidated financial statements, the changes in certain key items in those condensed consolidated financial statements from period to period and the primary factors that contributed to those changes, as well as how certain critical accounting estimates affect our condensed consolidated financial statements.

 

Results of Operations

 

The following table sets forth for the periods presented certain financial data as a percentage of net sales for the quarter and nine months ended September 27, 2014 and September 28, 2013:

 

 

 

Quarters Ended

 

Nine months ended

 

 

 

September 27,
2014

 

September 28,
2013

 

September 27,
2014

 

September 28,
2013

 

Net revenues

 

100.0

%

100.0

%

100.0

%

100.0

%

Cost of revenues

 

82.2

 

81.6

 

82.1

 

82.1

 

Gross profit

 

17.8

 

18.4

 

17.9

 

17.9

 

Selling, general and administrative expenses

 

10.4

 

11.7

 

11.8

 

12.9

 

Operating income

 

7.4

 

6.7

 

6.1

 

5.0

 

Interest expense, net

 

0.9

 

0.5

 

0.9

 

0.4

 

Income before income taxes

 

6.5

 

6.2

 

5.2

 

4.6

 

Income tax provision

 

2.2

 

2.3

 

1.8

 

1.6

 

Net income

 

4.3

%

3.9

%

3.4

%

3.0

%

 

Our operations consist of two reportable segments:  frozen products and snack products.  The frozen product segment includes frozen fruits, vegetables and beverages, for sale primarily to groceries, club stores and mass merchandisers.  The snack product segment includes manufactured potato chips, kettle chips, potato crisps, potato skins, pellet snacks, sheeted dough products, cereal and extruded products for sale primarily to snack food distributors and retailers.

 

Net Revenues.  Consolidated net revenues increased $18.0 million, or 33.1%, to $72.6 million in the third quarter ended September 27, 2014, compared to $54.5 million during the prior-year period.  Net revenues for the nine months ended September 27, 2014 increased $55.2 million, or 35.2%, to $211.9 million compared to the nine months ended September 28, 2013.  Our net revenues by operating segment were as follows (in thousands):

 

 

 

Quarters Ended

 

 

 

Nine months ended

 

 

 

 

 

September 27,
2014

 

September 28,
2013

 

%
Change

 

September 27,
2014

 

September 28,
2013

 

%
Change

 

Frozen

 

$

46,123

 

$

27,480

 

67.8

%

$

133,916

 

$

82,037

 

63.2

%

Snack

 

26,433

 

27,034

 

(2.2

)%

78,001

 

74,691

 

4.4

%

Consolidated

 

$

72,556

 

$

54,514

 

33.1

%

$

211,917

 

$

156,728

 

35.2

%

 

17



Table of Contents

 

Our frozen products segment net revenues were $46.1 million during the third quarter of 2014, an increase of $18.6 million, or 67.8%, compared to the prior year period.  This increase was due to increases in our frozen berry business and sales of frozen vegetables attributable to the acquisition of Fresh Frozen Foods in November 2013.  Net revenues from frozen berries increased 12.4% to $27.7 million in the third quarter of 2014, compared to the third quarter of 2013, primarily attributable to increased capacity with the installation of two new IQF tunnels in 2014.  Net revenues from frozen beverages increased 30.8%.

 

During the nine months ended September 27, 2014, the frozen products segment net revenues were $133.9 million, up $51.9 million, or 63.2%, compared to the first nine months of 2013.  This increase was due to increases in our frozen berry business and the addition of sales of frozen vegetables attributable to the acquisition of Fresh Frozen Foods in November 2013.  Net revenues from frozen berries increased 12.4% to $80.0 million in the first nine months of 2014, primarily attributable to the acquisition of Willamette Valley Fruit Company in May 2013.

 

Our snack products segment net revenues decreased 2.2%, or $0.6 million, to $26.4 million for the quarter ended September 27, 2014, compared to $27.0 million for the quarter ended September 28, 2013. The decrease was primarily attributable to lower sales from our co-pack business as a result of a ramp up for a product launch in the prior year, our decision to discontinue approximately $1.5 million in lower margin sales and a 10.7% decline in net revenues of our T.G.I. Friday’s branded products.  The impact of these reductions was partially offset by a 90.8% increase in net sales of our Boulder Canyon® products and a 52.9% increase in our healthy/natural snack private label business during the third quarter of 2014, compared to the third quarter of 2013.

 

During the nine months ended September 27, 2014, net revenues of the snack segment increased $3.3 million, or 4.4%, to $78.0 million, compared to $74.7 million in the first nine months of the previous year.  This increase was primarily attributable to net sales of our Boulder Canyon® products, which increased 63.4% in the first nine months of 2014, compared to the first nine months of 2013.  The growth of Boulder Canyon® products was partially offset by a decrease in our indulgent private label and co-pack business, as well as a 12.0% decline in net revenues of our T.G.I. Friday’s branded products.

 

Gross Profit.  Gross profit for the quarter ended September 27, 2014 increased 28.5% compared to the quarter ended September 28, 2013, with gross margin percentage decreasing 60 basis points to 17.8% for the three months ended September 27, 2014, compared to 18.4% for the three months ended September 28, 2013.  For the nine months ended September 27, 2014, gross profit increased 35.4% compared to the nine months ended September 28, 2013, with gross margin percentage remaining flat at 17.9% for the nine months ended September 27, 2014 and September 28, 2013.  Our gross profit and gross profit as a percentage of net sales by operating segment were as follows (in thousands):

 

 

 

Quarters Ended

 

Nine months ended

 

 

 

September 27,
2014

 

% of Net
Revenues

 

September 28,
2013

 

% of Net
Revenues

 

September 27,
2014

 

% of Net
Revenues

 

September 28,
2013

 

% of Net
Revenues

 

Frozen

 

$

7,846

 

17.0

%

$

6,221

 

22.6

%

$

22,788

 

17.0

%

$

15,615

 

19.0

%

Snack

 

5,080

 

19.2

%

3,835

 

14.2

%

15,157

 

19.4

%

12,402

 

16.6

%

Consolidated

 

$

12,926

 

17.8

%

$

10,056

 

18.4

%

$

37,945

 

17.9

%

$

28,017

 

17.9

%

 

Our frozen segment gross profit for the quarter ended September 27, 2014 increased $1.6 million, or 26.1%, to $7.8 million.  Gross margin percentage decreased 560 basis points to 17.0% for the quarter ended September 27, 2014, compared to 22.6% during the quarter ended September 28, 2013.  This decrease in gross margin percentage for the third quarter of 2014 was primarily attributable to the use of lower margin purchased frozen berries compared to the use of the Company’s higher margin grown berries in the prior year as a result of the timing of purchases.

 

The frozen segment gross profit increased $7.2 million, or 45.9%, to $22.8 million for the nine-month period ended September 27, 2014.  Gross margin percentage decreased 200 basis points to 17.0% for the nine month period ended September 27, 2014, compared to 19.0% during the same period in 2013.  This decrease in gross margin for the first nine months of 2014 was primarily attributable to the use of lower margin purchased frozen berries compared to the use of the Company’s higher margin grown berries in the prior year as a result of the timing of purchases.

 

Our snack products segment gross profit for the quarter ended September 27, 2014 increased $1.2 million, or 32.5%, to $5.1 million.  Gross margin percentage increased 500 basis points to 19.2% for the quarter ended September 27, 2014, compared to 14.2% during quarter ended September 28, 2013.  This increase in gross margin was primarily due to our product sales mix, including increased sales of our branded products, and decreased sales of certain lower margin products.

 

18



Table of Contents

 

Our snack products segment gross profit for the first nine months of 2014 increased $2.8 million, or 22.2%, to $15.2 million, compared to $12.4 million in the prior year period.  Gross margin percentage increased 280 basis points to 19.4% during the first nine months of 2014 compared to 16.6% in the prior year period.  This increase in gross margin was primarily due to our product sales mix, including increased sales of our branded products, reduced promotional spending and decreased sales of certain lower margin products.

 

Selling, General and Administrative Expenses.  Selling, general and administrative (“SG&A”) expenses increased $1.2 million, or 18.4%, to $7.6 million for the quarter ended September 27, 2014 compared to $6.4 million in the quarter ended September 28, 2013.  SG&A expenses included a number of adjustments including the $2.1 million reversal of the Fresh Frozen contingent consideration liability, the estimated Jamba litigation settlement cost of $0.4 million and approximately $0.3 million of fees associated with our recent public secondary offering. The net impact of these items reduced SG&A expenses by $1.4 million.  Excluding the impact of these items, SG&A expenses increased $2.6 million, or 39.9%, to $8.9 million, compared to $6.4 million in the prior year period. As a percentage of net revenues, SG&A expenses, excluding the aforementioned items, increased 60 basis points to 12.3%, compared to 11.7% in the prior year period as a result of increased health insurance costs and as a result of reinvesting a portion of earnings back into the business to support future growth.

 

For the nine months ended September 27, 2014, SG&A expenses increased $4.8 million, or 23.5%, to $25.0 million compared to $20.2 million in the nine months ended September 28, 2013.  SG&A expenses included a number of adjustments including the $2.6 million reversal of the Fresh Frozen contingent consideration liability, the estimated Jamba litigation settlement cost of $0.4 million and approximately $0.3 million of fees associated with our recent public secondary offering. The net impact of these items reduced SG&A expenses by $1.9 million in the first nine months of 2014.  Excluding the impact of these items, SG&A expenses increased $6.6 million, or 32.8%, to $26.9 million for the nine months ended September 27, 2014.  As a percentage of net revenues, SG&A expenses decreased 20 basis points to 12.7% in the nine months ended September 27, 2014, compared to 12.9% during the first nine months of 2013.  The increase in SG&A expenses was primarily driven by increased costs from our acquired businesses, partially offset by increased marketing and sampling expenses in the prior year related to Boulder Canyon® branded products and increased sampling expenses incurred for a Super Bowl mass merchandiser event during the first quarter of 2013 related to T.G.I. Friday’s® branded products.

 

Interest Expense. Interest expense for the three and nine months ended September 27, 2014 increased $0.4 million, and $1.3 million, respectively, compared to the three and nine months ended September 28, 2013.  Interest expense primarily relates to borrowings associated with our acquisitions, our revolving line of credit and capital lease financing.  For a description of our various financing facilities, see Note 6 to our Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

 

Income Tax Provision.  Our income tax provision for the quarter ended September 27, 2014 was $1.6 million, compared to $1.3 million for the quarter ended September 28, 2013.  Our effective tax rate for the quarters ended September 27, 2014 and September 28, 2013 was 34.5% and 37.0%, respectively.  The change in the effective tax rate is primarily due to an increase in state research and development credits.

 

The income tax provision for the nine months ended September 27, 2014 was $3.9 million, compared $2.5 million for the first nine months of 2013.  Our effective tax rate for the nine months ended September 27, 2014 decreased slightly to 35.3% from 35.4% for the nine months ended September 28, 2013.

 

Liquidity and Capital Resources

 

Liquidity represents our ability to generate sufficient cash flows from operating activities to satisfy obligations as well as our ability to obtain appropriate financing.  Therefore, liquidity cannot be considered separately from capital resources that consist primarily of current and potentially available funds for use in achieving our objectives.  Currently, our liquidity needs arise primarily from working capital requirements, capital expenditures, and debt repayment.  Sufficient liquidity is expected to be available to enable us to meet these demands for at least the next 12 months.  Net working capital was $51.5 million (a current ratio of 2.1:1) and $34.0 million (a current ratio of 2.0:1) at September 27, 2014 and December 28, 2013, respectively.

 

19



Table of Contents

 

Operating Cash Flows

 

Cash flows from operating activities for the nine months ended September 27, 2014 and September 28, 2013 reflect our net income, adjusted for non-cash items such as depreciation, amortization, share-based compensation expense and write-offs and write-downs of assets, as well as changes in accounts receivable, inventories, other current assets and liabilities, accounts payable and accrued expenses and other liabilities.  Net cash used in operating activities was $5.6 million for the nine months ended September 27, 2014, compared to $0.3 million net cash provided by operating activities for the nine months ended September 28, 2013.  The $5.9 million year-over-year change was primarily a result of increased cash used to maintain inventory in the current year as a result of continued growth in demand primarily for our frozen products business.  The impact from higher cash outlays for inventory was partially offset by increased payables as well as higher collections of accounts receivables.

 

Investing Cash Flows

 

Net cash used in investing activities was $12.1 million for the nine months ended September 27, 2014, compared to $15.5 million for the nine months ended September 28, 2013.  This decrease was primarily due to a cash payment of $8.5 million to fund the acquisition of Willamette Valley Fruit Company during the second quarter of 2013.  Capital expenditures of $10.8 million in 2014 relate to the purchase of $8.0 million of manufacturing equipment, primarily related to new packaging and extrusion equipment at our Bluffton, Indiana facility, as well new freezing tunnels at our Lynden, Washington, and Salem, Oregon facilities.  We also incurred approximately $0.9 million in planting costs at our Lynden, Washington facility.  Capital expenditures of $7.1 million in 2013 primarily relate to the purchase of manufacturing equipment at our Bluffton, Indiana facility of $5.7 million, as well as $0.8 million in planting costs, $0.6 million in office equipment.  During the full year 2014, we plan to spend approximately $12.4 million in capital expenditures, primarily at our manufacturing facilities.  Capital expenditures are funded by net cash flow from operating activities, cash on hand, and available credit from our credit facility.

 

Financing Cash Flows

 

Net cash provided by financing activities for the nine months ended September 27, 2014 was $17.5 million, compared to $15.6 million in the nine months ended September 28, 2013.  This $1.9 million year-over-year increase in cash provided by financing activities is primarily due to increased borrowings on our line of credit, partially offset by the effect of reduced borrowing under our term loans and increased repayments on long-term debt.

 

Debt and Capital Resources

 

At September 27, 2014, there was $0.8 million in cash and $20.7 million borrowed on our revolving line of credit.  At that date, $4.1 million of additional borrowings were available under the revolving line of credit.  As is customary in such financings, U.S. Bank may terminate its commitments and accelerate the repayment of amounts outstanding and exercise other remedies upon the occurrence of an event of default (as defined in the Loan Agreement), subject, in certain instances, to the expiration of an applicable cure period.  Certain events may trigger an acceleration of repayment of the amounts outstanding under the New Loan Agreement (as defined noted in Note 6 to our Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q) as defined in the agreement.  The agreement requires us to maintain compliance with certain financial covenants, including a minimum fixed charge coverage ratio, a leverage ratio and an asset coverage ratio.  At September 27, 2014, we were in compliance with all of the financial covenants.  See Note 6 to our Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for detail regarding our financing arrangements.

 

Outlook

 

We believe that our current financing arrangement with U.S. Bank is sufficient to finance our working capital needs and future capital expenditures.  We anticipate fiscal 2014 capital expenditures of approximately $12.4 million, funded through working capital and various purchase or leasing arrangements.  Our plans are not expected to materially affect our financial ratios or liquidity.  In connection with the implementation of our business strategy, we may incur operating losses in the future and may require future debt or equity financings (particularly in connection with future strategic acquisitions, new brand introductions or capital expenditures).  Expenditures relating to acquisition-related integration costs, market and territory expansion and new product development and introduction may adversely affect promotional and operating expenses and consequently may adversely affect operating and net income.  These types of expenditures are expensed for accounting purposes as incurred, while revenue generated from the result of such expansion or new products may benefit future periods.  We believe that we will generate positive cash flow from operations during the next twelve months, which, along with our existing working capital and available borrowings under our credit facilities, will enable us to meet our operating cash requirements for the next twelve months.  This belief is based on current operating plans and certain assumptions, including those relating to our future revenue levels and expenditures, industry and general economic conditions and other conditions.

 

20



Table of Contents

 

For instance, if current general economic conditions worsen, we believe that our sales forecasts may prove to be less reliable than they have in the past as consumers may change their buying habits with respect to snack food products.  Unexpected price increases for commodities used in our snack products, or adverse weather conditions affecting our Rader Farms crop yield could also impact our financial condition.  If any of these factors change, we may require future debt or equity financings to meet our business requirements.  Any required financings may not be available when needed or at all or, if available, may not be on terms attractive to us.

 

Interest Rate Swaps

 

See Note 6 to our Condensed Consolidated Financial Statements in Part I, Item 1 of this report for detail regarding our interest rate swaps.

 

Contractual Obligations

 

Other than the change in our licensing commitments to T.G.I. Friday’s reflected below, there have been no material changes in our reported contractual obligations, as described under “Contractual Obligations” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K/A for the year ended December 28, 2013.

 

Under our amended license agreement with T.G.I. Friday’s, effective March 31, 2014, non-refundable advances totaling $400,000 are payable in the amounts of $150,000 in the current year, $150,000 in years 2015-2016 and $100,000 in years 2017-2018.

 

Critical Accounting Policies and Estimates

 

There have been no significant changes to our critical accounting policies and estimates since the filing of our Form 10-K/A for the year ended December 28, 2013.

 

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

 

There have been no material changes in our reported market risks, as described in “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of our Annual Report on Form 10-K/A for the year ended December 28, 2013.

 

Item 4.  Controls and Procedures

 

As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures.  Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective for the purpose of providing reasonable assurance that the information required to be disclosed in the reports we file or submit under the Exchange Act of 1934 (1) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and (2) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

 

During the fiscal quarter ended September 27, 2014, there were no changes to the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

21



Table of Contents

 

Part II.       Other Information

 

Item 1.         Legal Proceedings

 

For a discussion of legal proceedings, see Note 7 to the Condensed Consolidated Financial Statements in Part I, Item 1 of this report.

 

Item 1A. Risk Factors

 

During the quarter and nine months ended September 27, 2014, there were no material changes from the risk factors as previously disclosed in our Annual Report on Form 10-K/A for the fiscal year ended December 28, 2013.

 

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

 

None.

 

Item 3.         Defaults upon Senior Securities

 

None.

 

Item 4.         Mine Safety Disclosures

 

Not applicable.

 

Item 5.         Other Information

 

None.

 

Item 6. Exhibits

 

31.1*

 

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a).

 

 

 

31.2 *

 

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a).

 

 

 

32**

 

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101.INS*

 

XBRL Instance Document.

101.SCH*

 

XBRL Taxonomy Extension Scheme Document.

101.CAL*

 

XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB*

 

XBRL Taxonomy Extension Labels Linkbase Document.

101.PRE*

 

XBRL Taxonomy Extension Presentation Linkbase Document.

101.DEF*

 

XBRL Taxonomy Extension Definition Linkbase Document.

 


*   Filed herewith.

** Furnished herewith.

 

22



Table of Contents

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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.

 

Dated:

November 4, 2014

 

INVENTURE FOODS, INC.

 

 

 

 

 

 

 

By:

/s/ Steve Weinberger

 

 

Steve Weinberger

 

 

Chief Financial Officer

 

 

(Principal Financial Officer and Principal Accounting Officer)

 

23