Table of
Contents
U.S. 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 25,
2010
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: 1-14556
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)
|
Registrants 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 during the
preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes
o
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
o
|
|
|
|
Non-accelerated filer
o
|
|
Smaller reporting company
x
|
(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
Indicate the number of shares outstanding of each of the issuers
classes of common stock, as of the latest practicable date: 17,966,731 as of November 5,
2010.
Table of Contents
PART I.
|
FINANCIAL INFORMATION
|
Item 1.
|
Financial Statements
|
INVENTURE FOODS, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
(unaudited)
|
|
September 25,
|
|
December 26,
|
|
|
|
2010
|
|
2009
|
|
ASSETS
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,200,651
|
|
$
|
1,102,689
|
|
Accounts receivable, net of allowance for doubtful
accounts of $105,434 in 2010 and $101,076 in 2009
|
|
12,473,155
|
|
10,884,986
|
|
Inventories
|
|
23,243,551
|
|
17,445,163
|
|
Deferred income tax asset
|
|
637,460
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|
651,761
|
|
Other current assets
|
|
1,475,933
|
|
1,045,797
|
|
Total current assets
|
|
39,030,750
|
|
31,130,396
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
27,867,986
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|
23,734,921
|
|
Goodwill
|
|
11,616,225
|
|
11,616,225
|
|
Trademarks and other intangibles, net
|
|
2,725,660
|
|
2,757,161
|
|
Other assets
|
|
671,860
|
|
596,157
|
|
Total assets
|
|
$
|
81,912,481
|
|
$
|
69,834,860
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS EQUITY
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Accounts payable
|
|
$
|
8,670,568
|
|
$
|
6,751,612
|
|
Line of credit
|
|
10,908,108
|
|
9,870,590
|
|
Accrued liabilities
|
|
7,320,608
|
|
5,314,180
|
|
Current portion of long-term debt
|
|
1,198,890
|
|
1,204,475
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|
Total current liabilities
|
|
28,098,174
|
|
23,140,857
|
|
|
|
|
|
|
|
Long-term debt, less current portion
|
|
12,169,394
|
|
10,037,902
|
|
Interest rate swaps
|
|
871,971
|
|
452,292
|
|
Deferred income tax liability
|
|
3,505,309
|
|
3,077,343
|
|
Other liabilities
|
|
418,114
|
|
219,903
|
|
Total liabilities
|
|
45,062,962
|
|
36,928,297
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 6)
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
Common stock, $.01 par value; 50,000,000 shares
authorized; 18,334,688 and 18,255,600 shares issued and outstanding at
September 25, 2010 and December 26, 2009
|
|
183,348
|
|
182,557
|
|
Additional paid-in capital
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|
26,386,448
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|
26,025,511
|
|
Accumulated other comprehensive loss
|
|
(441,768
|
)
|
(188,429
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)
|
Retained earnings
|
|
11,192,686
|
|
7,358,119
|
|
|
|
37,320,714
|
|
33,377,758
|
|
Less: treasury stock, at cost: 367,957 shares at
September 25, 2010 and December 26, 2009
|
|
(471,195
|
)
|
(471,195
|
)
|
Total shareholders equity
|
|
36,849,519
|
|
32,906,563
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|
Total liabilities and shareholders equity
|
|
$
|
81,912,481
|
|
$
|
69,834,860
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
3
Table
of Contents
INVENTURE FOODS, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
|
|
Quarter Ended
|
|
Nine Months Ended
|
|
|
|
September 25,
|
|
September 26,
|
|
September 25,
|
|
September 26,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
34,072,238
|
|
$
|
29,937,411
|
|
$
|
100,381,412
|
|
$
|
93,075,776
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
27,013,633
|
|
23,214,654
|
|
78,695,115
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|
73,908,543
|
|
|
|
|
|
|
|
|
|
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|
Gross profit
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|
7,058,605
|
|
6,722,757
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|
21,686,297
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|
19,167,233
|
|
|
|
|
|
|
|
|
|
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Selling, general and administrative expenses
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|
5,446,661
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|
4,282,591
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|
15,372,110
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13,148,891
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
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|
1,611,944
|
|
2,440,166
|
|
6,314,187
|
|
6,018,342
|
|
|
|
|
|
|
|
|
|
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|
Interest expense, net
|
|
(232,545
|
)
|
(267,306
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)
|
(630,407
|
)
|
(681,259
|
)
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
1,379,399
|
|
2,172,860
|
|
5,683,780
|
|
5,337,083
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
(166,882
|
)
|
(869,099
|
)
|
(1,849,213
|
)
|
(2,108,776
|
)
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,212,517
|
|
$
|
1,303,761
|
|
$
|
3,834,567
|
|
$
|
3,228,307
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.07
|
|
$
|
0.07
|
|
$
|
0.21
|
|
$
|
0.18
|
|
Diluted
|
|
$
|
0.07
|
|
$
|
0.07
|
|
$
|
0.21
|
|
$
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
17,936,356
|
|
17,885,440
|
|
17,907,241
|
|
17,978,031
|
|
Diluted
|
|
18,559,515
|
|
18,041,679
|
|
18,490,471
|
|
18,225,781
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
Table
of Contents
INVENTURE FOODS, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
|
|
Nine Months Ended
|
|
|
|
September 25,
2010
|
|
September 26,
2009
|
|
|
|
|
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
Net income
|
|
$
|
3,834,567
|
|
$
|
3,228,307
|
|
Adjustments to reconcile net income to net cash
provided by operating activities:
|
|
|
|
|
|
Depreciation
|
|
2,788,198
|
|
2,516,727
|
|
Amortization
|
|
46,832
|
|
46,831
|
|
Provision for bad debts
|
|
4,359
|
|
19,603
|
|
Deferred income taxes
|
|
442,267
|
|
518,698
|
|
Share-based compensation expense
|
|
361,728
|
|
199,990
|
|
Loss on disposition of equipment
|
|
24,798
|
|
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
Accounts receivable
|
|
(1,592,527
|
)
|
(1,086,062
|
)
|
Inventories
|
|
(5,798,388
|
)
|
(7,113,610
|
)
|
Other assets and liabilities
|
|
(322,958
|
)
|
(64,376
|
)
|
Accounts payable and accrued liabilities
|
|
4,091,724
|
|
2,038,157
|
|
Net cash provided by operating activities
|
|
3,880,600
|
|
304,265
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
Purchase of equipment
|
|
(6,816,759
|
)
|
(2,063,155
|
)
|
Net cash used in investing activities
|
|
(6,816,759
|
)
|
(2,063,155
|
)
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
Net borrowings on line of credit
|
|
1,037,518
|
|
3,233,639
|
|
Payments made on capital lease obligations
|
|
(21,600
|
)
|
|
|
Proceeds from lender for interim financing
|
|
2,927,097
|
|
|
|
Payments made on long-term debt
|
|
(908,894
|
)
|
(913,318
|
)
|
Proceeds from issuance of common stock
|
|
|
|
6,989
|
|
Treasury stock purchases
|
|
|
|
(471,195
|
)
|
Net cash provided by financing activities
|
|
3,034,121
|
|
1,856,115
|
|
Net increase in cash and cash equivalents
|
|
97,962
|
|
97,225
|
|
Cash and cash equivalents at beginning of period
|
|
1,102,689
|
|
683,567
|
|
Cash and cash equivalents at end of period
|
|
$
|
1,200,651
|
|
$
|
780,792
|
|
|
|
|
|
|
|
Supplemental disclosures of
cash flow information:
|
|
|
|
|
|
Cash paid during the period for interest
|
|
$
|
249,495
|
|
$
|
239,901
|
|
Cash paid during the period for income taxes
|
|
$
|
1,255,329
|
|
$
|
1,335,000
|
|
|
|
|
|
|
|
Supplemental disclosures of
non-cash investing and financing transactions:
|
|
|
|
|
|
Capital lease obligations incurred for the
acquisition of property and equipment
|
|
$
|
129,303
|
|
$
|
|
|
The accompanying notes are an integral part
of these condensed consolidated financial statements.
5
Table of
Contents
INVENTURE FOODS, INC. AND
SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and
Summary of Significant Accounting Policies
Inventure Foods, Inc.,
a Delaware corporation (the Company), is a $120+ million leading marketer and
manufacturer of healthy/natural and indulgent specialty snack food brands. The
Company changed its name in May 2010 to Inventure Foods, Inc. from The
Inventure Group, Inc. to emphasize its focus as an innovative food maker
and manufacturer. The Company is
headquartered in Phoenix, Arizona with plants in Arizona, Indiana and
Washington. The Companys executive offices are located at 5415 East High
Street, Suite 350, Phoenix, Arizona 85054, and its telephone number is
(623) 932-6200.
The Company was formed in
1995 as a holding company to acquire a potato chip manufacturing and
distribution business, which had been founded by Donald and James Poore in
1986. In December 1996, the Company completed an initial public
offering of its Common Stock. In November 1998, the Company acquired
the business and certain assets (including the Bobs Texas Style® potato chip
brand) of Tejas Snacks, L.P. (Tejas), a Texas-based potato chip
manufacturer. In October 1999, the Company acquired Wabash Foods,
LLC (Wabash) including the Tato Skins®, OBoisies®, and Pizzarias® trademarks
and the Bluffton, Indiana manufacturing operation and assumed all of
Wabash Foods liabilities. In June 2000, the Company acquired
Boulder Natural Foods, Inc. (Boulder) and the Boulder Canyon
TM
brand of totally
natural potato chips. In May 2007, the Company acquired Rader
Farms, Inc., including a farming operation and a berry processing facility
in Lynden, Washington.
The Companys goal is to
build a rapidly growing specialty brand company that specializes on evolving
consumer eating habits in two primary product segments: 1) Healthy/Natural Food
Products 2) Indulgent Specialty Snack Food Brands. The Company sells its
products nationally through a number of channels including: Grocery, Natural,
Mass, Drug, Club, Vending, Food Service, Convenience Stores and International.
In the Healthy/Natural
portfolio, products include Rader Farms frozen berries, Boulder Canyon Natural
Foods brand kettle cooked potato chips, and Jamba branded blend-and-serve
smoothie kits under license from Jamba Corporation. In the Indulgent Specialty category, products
include TGI Fridays® brand snacks under license from TGI Fridays Inc., BURGER
KING brand snack products under license from Burger King Corporation,
Poore Brothers® kettle cooked potato chips, Bobs Texas Style® kettle cooked
chips, and Tato Skins® brand potato snacks. The Company also manufactures
private label snacks for certain grocery retail chains and distributes snack
food products in Arizona that are manufactured by others.
The Companys frozen berry
products are manufactured by Rader Farms, Inc. (Rader Farms) a
Washington corporation located in Whatcom County, and acquired by the Company
in May of 2007. Rader Farms grows, processes and markets
premium berry blends, raspberries, blueberries, and rhubarb and purchases
marionberries, 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. The Company also
uses third party processors for certain products.
The Companys snack products
are manufactured at the Arizona and Indiana plants as well as some third party
plants for certain products.
The Companys fiscal year
typically ends on the last Saturday occurring in the month of December of
each calendar year. Accordingly, the third quarter of 2010 commenced
June 27, 2010 and ended September 25, 2010.
Basis of Presentation
The condensed consolidated
financial statements include the accounts of Inventure Foods, Inc. and all
of its wholly owned subsidiaries. All
significant intercompany amounts and transactions have been eliminated. The 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. 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 condensed
consolidated financial statements not misleading. A description of the Companys accounting
policies and other financial information is included in the audited financial
statements filed with the Companys Annual Report on Form 10-K for the
fiscal year ended December 26, 2009.
The results of operations for the quarter and nine months ended September 25,
2010 are not necessarily indicative of the results expected for the full year.
6
Table
of Contents
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.
The Company
classifies its 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 instruments 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 25, 2010
and December 26, 2009, 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 the
Company for long-term borrowings with similar terms.
|
|
Fair Value at September 25, 2010
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
|
$
|
871,971
|
|
|
|
$
|
871,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 the Company 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.
Income taxes
For
the quarter ended September 25, 2010 and September 26, 2009 the
Companys provision for income taxes were $0.2 million and $0.9 million,
respectively. For the nine months ended
September 25, 2010 and September 26, 2009 the Companys provision for
income taxes were $1.8 million and $2.1 million, respectively.
The
effective tax rate for the third quarter of 2010 was 12.1% compared with 40.0 %
for the third quarter of 2009. The effective rate for the nine months ended September 25,
2010 was 32.5% compared with 39.5% for the comparable 2009 period. The 2010
period rates were lower primarily due to the impact of research and development
tax credits from prior periods, and domestic production activity deductions.
Adoption of
New Accounting Pronouncements
In January 2010, the FASB
issued an amendment to require new disclosures for fair value measurements and
provide clarification for existing disclosure requirements. More specifically,
this update requires (a) an entity to disclose separately the amounts of
significant transfers in and out of Levels 1 and 2 fair value measurements
and to describe the reasons for the transfers; and (b) information about
purchases, sales, issuances and settlements to be presented separately (i.e.
present the activity on a gross basis rather than net) in the reconciliation
for fair value measurements using significant unobservable inputs (Level 3
inputs). This update clarifies existing disclosure requirements for the level
of disaggregation used for classes of assets and liabilities measured at fair
value and requires disclosures about the valuation techniques and inputs used
to measure fair value for both recurring and nonrecurring fair value
measurements using Level 2 and Level 3 inputs. The Company adopted
this standard at the beginning of its 2010 fiscal year and it did not have a
material impact on the Consolidated Financial Statement note disclosures.
7
Table
of Contents
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. Diluted
earnings per share is calculated by including all dilutive common shares such
as stock options and restricted stock. The total stock options of 2,000,500 and
1,879,500 were excluded from the weighted average per share calculation for the
quarter and nine months ended September 25, 2010, respectively, because
inclusion of such would be anti-dilutive.
Stock options outstanding of 765,500 and 1,130,500 and were excluded
from the weighted average per share calculation for the quarter and nine months
ended September 26, 2009 because inclusion of such would be
anti-dilutive. Total restricted shares
outstanding of 89,000 were excluded from the weighted average per share
calculation for the quarter and nine months ended September 26, 2009,
because inclusion of such would be anti-dilutive. 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 25,
2010 and September 26, 2009:
|
|
Quarter Ended
|
|
Nine Months Ended
|
|
|
|
September 25,
2010
|
|
September 26,
2009
|
|
September 25,
2010
|
|
September 26,
2009
|
|
Basic Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
1,212,517
|
|
$
|
1,303,761
|
|
$
|
3,834,567
|
|
$
|
3,228,307
|
|
Weighted
average number of common shares
|
|
17,936,356
|
|
17,885,440
|
|
17,907,241
|
|
17,978,031
|
|
Earnings
per common share
|
|
$
|
0.07
|
|
$
|
0.07
|
|
$
|
0.21
|
|
$
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
1,212,517
|
|
$
|
1,303,761
|
|
$
|
3,834,567
|
|
$
|
3,228,307
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares
|
|
17,936,356
|
|
17,885,440
|
|
17,907,241
|
|
17,978,031
|
|
Incremental
shares from assumed conversions of stock options and non- vested shares of
restricted stock
|
|
623,159
|
|
156,239
|
|
583,230
|
|
247,750
|
|
Adjusted
weighted average number of common shares
|
|
18,559,515
|
|
18,041,679
|
|
18,490,471
|
|
18,225,781
|
|
Earnings
per common share
|
|
$
|
0.07
|
|
$
|
0.07
|
|
$
|
0.21
|
|
$
|
0.18
|
|
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 period of the
award, which is currently five to ten years for stock options, and one to three
years for restricted stock. The Company
estimates future forfeiture rates based on its 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 be
classified as cash inflows from financing activities and cash outflows from
operating activities.
See Footnote 8 Stock
Options, Stock-Based Compensation and Shareholders Equity for additional
information.
Deferred Compensation Plan
Effective
January 1, 2007 the Company implemented a deferred compensation plan. The assets are invested in mutual funds and
are reflected in other current assets and the related obligation is reflected
in accrued liabilities in the Companys Condensed Consolidated Balance Sheets.
2. Inventories
Inventories consisted of the following
:
|
|
September 25,
|
|
December 26,
|
|
|
|
2010
|
|
2009
|
|
Finished goods
|
|
$
|
5,481,175
|
|
$
|
5,558,696
|
|
Raw materials
|
|
17,762,376
|
|
11,886,467
|
|
|
|
$
|
23,243,551
|
|
$
|
17,445,163
|
|
8
Table
of Contents
3. Goodwill, Trademarks and Other
Intangibles
Goodwill, trademarks and other intangibles, net
consisted of the following
:
|
|
Estimated
Useful Life
|
|
September 25,
2010
|
|
December 26,
2009
|
|
Goodwill:
|
|
|
|
|
|
|
|
Inventure Foods, Inc.
|
|
|
|
$
|
5,986,252
|
|
$
|
5,986,252
|
|
Rader Farms, Inc.
|
|
|
|
5,629,973
|
|
5,629,973
|
|
|
|
|
|
|
|
|
|
Total Goodwill
|
|
|
|
$
|
11,616,225
|
|
$
|
11,616,225
|
|
|
|
|
|
|
|
|
|
Trademarks:
|
|
|
|
|
|
|
|
Inventure Foods, Inc.
|
|
|
|
$
|
1,535,659
|
|
$
|
1,535,659
|
|
Rader Farms, Inc.
|
|
|
|
1,070,000
|
|
1,070,000
|
|
|
|
|
|
|
|
|
|
Other intangibles:
|
|
|
|
|
|
|
|
Rader - Covenant-not-to-compete, gross carrying
amount
|
|
5 years
|
|
160,000
|
|
160,000
|
|
Rader - Covenant-not-to-compete, accum.
amortization
|
|
|
|
(106,680
|
)
|
(82,676
|
)
|
Rader - Customer relationship, gross carrying
amount
|
|
10 years
|
|
100,000
|
|
100,000
|
|
Rader - Customer relationship, accum. amortization
|
|
|
|
(33,319
|
)
|
(25,822
|
)
|
|
|
|
|
|
|
|
|
Total Trademarks and other intangibles, net
|
|
|
|
$
|
2,725,660
|
|
$
|
2,757,161
|
|
Amortization expenses related to these intangibles were $10,500 and
$31,500 for the quarters and nine months, respectively, ended September 25,
2010 and September 26, 2009.
Goodwill
and trademarks are reviewed for impairment annually in the fourth fiscal
quarter, or more frequently if impairment indicators arise. Goodwill is
required to be tested for impairment between the annual tests if an event
occurs or circumstances change that more-likely-than-not reduces the fair value
of a reporting unit below its carrying value. Intangible assets with indefinite
lives are required to be tested for impairment between the annual tests if an
event occurs or circumstances change indicating that the asset might be
impaired. The carrying values were not
impaired as of September 25, 2010.
4. Accrued Liabilities
Accrued
liabilities consisted of the following:
|
|
September 25,
2010
|
|
December 26,
2009
|
|
Accrued payroll and payroll taxes
|
|
$
|
1,429,506
|
|
$
|
1,635,564
|
|
Accrued royalties and commissions
|
|
817,417
|
|
809,095
|
|
Accrued advertising and promotion
|
|
1,234,753
|
|
1,327,021
|
|
Accrued other
|
|
3,838,932
|
|
1,542,500
|
|
|
|
$
|
7,320,608
|
|
$
|
5,314,180
|
|
9
Table
of Contents
5. Long-Term Debt
Long-term debt consisted of the following:
|
|
September 25,
|
|
December 26,
|
|
|
|
2010
|
|
2009
|
|
Mortgage loan due monthly through July, 2012;
interest at 9.03%; collateralized by land and building in Goodyear,
AZ
|
|
$
|
1,464,767
|
|
$
|
1,515,079
|
|
Mortgage loan due monthly through December, 2016;
interest rate at 30 day LIBOR plus 165 basis points, fixed through
a swap agreement to 6.85%; collateralized by land and building in
Bluffton, IN
|
|
2,169,957
|
|
2,220,877
|
|
Equipment term loan due monthly through May, 2014;
interest at LIBOR plus 165 basis points; collateralized by equipment at Rader
Farms in Lynden, WA
|
|
3,214,286
|
|
3,857,143
|
|
Real Estate term loan due monthly through 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, WA
|
|
3,476,497
|
|
3,612,125
|
|
Equipment leases primarily due 2017
|
|
3,034,801
|
|
|
|
Vehicle term loan and other miscellaneous loans
due in various monthly installments through February, 2011;
collateralized by vehicles
|
|
2,876
|
|
29,868
|
|
Office Equipment leases due June 2012
|
|
5,100
|
|
7,285
|
|
|
|
13,368,284
|
|
11,242,377
|
|
Less current portion of long-term debt
|
|
(1,198,890
|
)
|
(1,204,475
|
)
|
Long-term debt, less current portion
|
|
$
|
12,169,394
|
|
$
|
10,037,902
|
|
To
fund the acquisition of Rader Farms, the Company entered into a Loan Agreement
(the Loan Agreement) with U.S. Bank National Association (U.S. Bank). Each
of the Companys subsidiaries is a guarantor of the Loan Agreement, which is
secured by a pledge of all of the assets of the consolidated group. The
borrowing capacity available to the Company under the Loan Agreement consists
of notes representing:
·
a $15,000,000 revolving line of credit
maturing on June 30, 2011; $10,908,108 was outstanding at September 25,
2010. Based on eligible assets, the
amount available under the line of credit was $4,091,892 at September 25,
2010. As defined in the revolving credit facility note, all borrowings under
the revolving line of credit will 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.
·
Equipment term loan due May 2014 noted
above.
·
Real estate term loan due July 2017
noted above.
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. The agreement requires the Company to
maintain compliance with certain financial covenants, including a minimum
tangible net worth, a minimum fixed charge coverage ratio and a minimum
leverage ratio. At September 25, 2010, the Company was in compliance with
all of the financial covenants.
During
the nine months ending September 25, 2010, the Company obtained $2.9
million in interim financing from U.S. Bank in association with the purchase of
certain capital equipment for its Bluffton, Indiana facility. Conversion of this arrangement into a
permanent capital lease obligation with US Bank was finalized September 29,
2010.
Interest Rate Swaps
To manage exposure to
changing interest rates, the Company selectively enters into interest rate swap
agreements. The Companys 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 (loss).
10
Table of Contents
The Company entered into an
interest rate swap in 2006 to convert the interest rate of the mortgage 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%. On September 28,
2008, the Companys first day of its fiscal fourth quarter, the Company
prospectively redesignated the hedging relationship to a cash flow
hedge. The swap has a fixed pay-rate of 6.85% and a notional amount
of approximately $2.2 million at September 25, 2010 and expires in
December, 2016. We evaluate the effectiveness of the hedge on a quarterly
basis and at September 25, 2010 the hedge is highly effective. The
interest rate swap had fair value of ($408,226) at September 25, 2010,
which is recorded as a liability on the accompanying 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 25, 2010.
The Company 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 25,
2010 was $3.5 million. The interest rate swap is accounted for as a cash
flow hedge derivative and expires in July 2017. We evaluate the
effectiveness of the hedge on a quarterly basis and at September 25, 2010
the hedge is highly effective. The interest rate swap had fair value of
($463,745) at September 25, 2010, which is recorded as a liability on the
accompanying 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 25,
2010.
The only component of other
comprehensive income/loss for the periods presented is the change in fair value
of the interest rate swaps. The effect of such is as follows:
|
|
Quarter ended
|
|
Nine Months Ended
|
|
|
|
September 25,
2010
|
|
September 26,
2009
|
|
September 25,
2010
|
|
September 26,
2009
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
1,212,517
|
|
$
|
1,303,761
|
|
$
|
3,834,567
|
|
$
|
3,228,307
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of interest rate swaps (net of tax)
|
|
(88,297
|
)
|
(59,430
|
)
|
(253,339
|
)
|
179,317
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income
|
|
$
|
1,124,220
|
|
$
|
1,244,331
|
|
$
|
3,581,228
|
|
$
|
3,407,624
|
|
6. Litigation
The Company is 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 the Companys financial position or results of operations.
7. Business Segments
The Companys operations
consist of three reportable segments: manufactured snack products, berry
products and distributed products. The manufactured snack products
segment produces potato chips, potato crisps, potato skins, pellet snacks,
kettle chips, and extruded product for sale primarily to snack food
distributors and retailers. The berry products segment produces frozen
fruit products, such as berries and smoothies, for sale primarily to groceries
and mass merchandisers. The distributed products segment sells snack food
products manufactured by other companies to the Companys Arizona snack food
distributors. The Companys reportable segments offer different products
and services. The majority of the Companys revenues are attributable to
external customers in the United States.
The Company does sell to external customers internationally in over 40
countries worldwide, however the revenues attributable to those customers are
immaterial. All of the Companys assets are located in the United
States. The Company does not allocate any assets to the distributed
products segment.
The accounting policies of the segments are the same as those described
in the Summary of Significant Accounting Policies (Note 1). The Company does not allocate assets,
selling, general and administrative expenses, income taxes or other income and
expense to segments.
11
Table of
Contents
|
|
Manufactured
Snack Products
|
|
Berry Products
|
|
Distributed
Products
|
|
Consolidated
|
|
Quarter ended
September 25
, 2010
|
|
|
|
|
|
|
|
|
|
Net
revenues from external customers
|
|
$
|
21,494,517
|
|
$
|
11,672,122
|
|
$
|
905,599
|
|
$
|
34,072,238
|
|
Depreciation
and amortization in segment gross profit
|
|
290,261
|
|
217,343
|
|
|
|
507,604
|
|
Segment
gross profit
|
|
4,652,065
|
|
2,365,805
|
|
40,735
|
|
7,058,605
|
|
Goodwill
|
|
5,986,252
|
|
5,629,973
|
|
|
|
11,616,225
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended
September 26
, 2009
|
|
|
|
|
|
|
|
|
|
Net
revenues from external customers
|
|
$
|
20,115,695
|
|
$
|
9,073,730
|
|
$
|
747,986
|
|
$
|
29,937,411
|
|
Depreciation
and amortization in segment gross profit
|
|
282,706
|
|
168,658
|
|
|
|
451,364
|
|
Segment
gross profit
|
|
4,292,288
|
|
2,224,840
|
|
205,629
|
|
6,722,757
|
|
Goodwill
|
|
5,986,252
|
|
5,629,973
|
|
|
|
11,616,225
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
September 25
, 2010
|
|
|
|
|
|
|
|
|
|
Net
revenues from external customers
|
|
$
|
62,048,479
|
|
$
|
35,571,345
|
|
$
|
2,761,588
|
|
$
|
100,381,412
|
|
Depreciation
and amortization in segment gross profit
|
|
886,656
|
|
590,877
|
|
|
|
1,477,533
|
|
Segment
gross profit
|
|
12,426,585
|
|
9,087,656
|
|
172,056
|
|
21,686,297
|
|
Goodwill
|
|
5,986,252
|
|
5,629,973
|
|
|
|
11,616,225
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
September 26,
2009
|
|
|
|
|
|
|
|
|
|
Net
revenues from external customers
|
|
$
|
59,007,933
|
|
$
|
31,499,559
|
|
$
|
2,568,284
|
|
$
|
93,075,776
|
|
Depreciation
and amortization in segment gross profit
|
|
794,980
|
|
477,972
|
|
|
|
1,272,952
|
|
Segment
gross profit
|
|
11,740,822
|
|
6,784,389
|
|
642,022
|
|
19,167,233
|
|
Goodwill
|
|
5,986,252
|
|
5,629,973
|
|
|
|
11,616,225
|
|
The following table reconciles reportable segment gross profit to the
Companys consolidated income before income tax provision for the quarters and
nine months ended September 25, 2010 and September 26, 2009:
|
|
Quarter Ended
|
|
Nine Months Ended
|
|
|
|
September 25,
2010
|
|
September 26,
2009
|
|
September 25,
2010
|
|
September 26,
2009
|
|
|
|
|
|
|
|
|
|
|
|
Segment
gross profit
|
|
$
|
7,058,605
|
|
$
|
6,722,757
|
|
$
|
21,686,297
|
|
$
|
19,167,233
|
|
Unallocated
amounts:
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
(5,446,661
|
)
|
(4,282,591
|
)
|
(15,372,110
|
)
|
(13,148,891
|
)
|
Interest
expense, net
|
|
(232,545
|
)
|
(267,306
|
)
|
(630,407
|
)
|
(681,259
|
)
|
Income
before income tax provision
|
|
$
|
1,379,399
|
|
$
|
2,172,860
|
|
$
|
5,683,780
|
|
$
|
5,337,083
|
|
8. Stock Options,
Stock-Based Compensation and Shareholders Equity
The Companys 1995 Stock
Option Plan (the 1995 Plan), as amended, provided for the issuance of options
to purchase 3,500,000 shares of Common Stock. The options granted
pursuant to the 1995 Plan expire over a five-year period and generally vest
over three years. In addition to options granted under the 1995 Plan, the
Company also issued non-qualified options (non-plan options) to purchase Common
Stock to certain Directors and Officers which are exercisable and expire either
five or ten years from date of grant. All options are issued at an
exercise price of fair market value at the date of grant and are
non-compensatory. The 1995 Plan expired in May 2005 with 410,518
reserved but unissued shares of Common Stock available for issuance under the
1995 Plan, and was replaced by the Inventure Foods, Inc. 2005 Equity
Incentive Plan (the 2005 Plan) as described below.
The 2005 Plan was approved
at the Companys 2005 Annual Meeting of Shareholders and reserved for issuance
that number of shares of Common Stock determined by adding (a) 410,518,
which is the number of reserved but unissued shares available for issuance
under the 1995 Plan, (b) 500,000, which is the number of additional shares
approved by the stockholders on May 23, 2006 to be added to the 2005 Plan,
(c) 500,000, which is the number of additional shares approved by the stockholders
on May 19, 2008 to be added to the 2005 Plan and (d) 500,000, which
is the number of additional shares approved by the stockholders on May 19,
2009 to be added to the 2005 Plan. If
any shares of Common Stock subject to awards granted under the 1995 Plan or the
2005 Plan are canceled, those shares will be available for future awards under
the 2005 Plan. The 2005 Plan expires in May 2015, and 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. Prior to May 2008, all
stock option grants had a five year term. The fair value of these stock option
grants is amortized to expense over the vesting period, generally three years
for employees and one year for the Board of Directors. In May 2008, the Companys Board of
Directors approved a ten year term for all future stock option grants, with
vesting periods of five years and one year for employees and Board of Director
members, respectively.
12
Table of
Contents
The
Company may grant restricted shares and restricted share units to eligible
employees. Such restricted shares and
restricted share units are subject to forfeiture if certain employment
conditions are not met. Restricted share
units generally vest in equal annual increments over a three year period with
no performance criteria for employees, and a one year vesting period for Board
of Director members. However, the
restricted stock units granted to all officers and senior management of the
Company during the nine months ending September 25, 2010 contain performance
restrictions which are required to be achieved at each vesting period in order
for the shares to be awarded. The fair
value of the restricted stock units is equal to the market price of our stock
at the date of the grant. Share-based
compensation expense related to restricted stock awards is recognized on the
straight-line method over the requisite vesting period, and the related
share-based compensation expense is included in selling, general and
administrative expenses.
Restricted stock and restricted
stock unit activity for the nine months ending September 25, 2010 was as
follows:
|
|
Plan Restricted Share Units
|
|
|
|
Number of
Shares
|
|
Weighted Average
Grant Date Fair
Value Per Share
|
|
Balance, December 26, 2009
|
|
89,000
|
|
$
|
2.40
|
|
Granted
|
|
240,000
|
|
$
|
3.40
|
|
Vested
|
|
(29,666
|
)
|
$
|
2.40
|
|
Forfeited
|
|
|
|
$
|
|
|
Balance, September 25, 2010
|
|
299,334
|
|
$
|
3.20
|
|
During
the nine months ending September 25, 2010 and September 26, 2009, the
total share-based compensation expense from restricted stock recognized in the
financial statements was $180,808 and $23,632 respectively. During the quarters ended September 25,
2010 and September 26, 2009, the Company recorded $109,193 and $17,726 of
share-based compensation expense, respectively, related to restricted stock. There
were no share-based compensation costs which were capitalized. As of September 25, 2010 and September 26,
2009 the total unrecognized costs related to non-vested restricted stock awards
granted was $813,743 and $189,078, respectively.
During the nine months
ending September 25, 2010 and September 26, 2009, the Company
recorded $180,920 and $182,272 of share-based compensation expense,
respectively related to stock options.
During the quarters ended September 25, 2010 and September 26,
2009, the Company recorded $66,258 and $66,101 of share-based compensation
expense, respectively, related to stock options. There were 161,000 and 2,140 stock options
exercised during the nine months ended September 25, 2010 and September 26,
2009, respectively.
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 quarter
and nine months ended:
|
|
Quarter Ended
|
|
Nine Months Ended
|
|
|
|
September 25,
2010
|
|
September 26,
2009
|
|
September 25,
2010
|
|
September 26,
2009
|
|
Expected dividend yield
|
|
0
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
Expected volatility
|
|
73
|
%
|
73
|
%
|
73
|
%
|
73
|
%
|
Risk-free interest rate
|
|
2.6
|
%
|
3.3% - 3.7
|
%
|
3.2% - 3.7
|
%
|
2.9% - 3.7
|
%
|
Expected life
|
|
6.5 years
|
|
6.5 years
|
|
6.5 years
|
|
6.5 years
|
|
The
expected dividend yield was based on the Companys 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.
As of September 25,
2010, the amount of unrecognized compensation expense related to stock options
to be recognized over the next two years is approximately $0.4 million. This
expected compensation expense does not reflect any new awards, or modifications
to existing awards, that could occur in the future. Generally, the Company
issues new shares upon the exercise of stock options as opposed to reissuing
treasury shares.
13
Table of
Contents
The
following table summarizes stock option activity during the nine months ended September 25,
2010:
|
|
Plan Options
|
|
|
|
|
|
Weighted
|
|
|
|
Options
|
|
Average
|
|
|
|
Outstanding
|
|
Exercise Price
|
|
Balance, December 26,
2009
|
|
2,130,500
|
|
$
|
2.26
|
|
Granted
|
|
230,000
|
|
$
|
3.39
|
|
Forfeited
|
|
(14,000
|
)
|
$
|
2.15
|
|
Exercised
|
|
(161,000
|
)
|
$
|
2.67
|
|
Balance,
September 25, 2010
|
|
2,185,500
|
|
$
|
2.35
|
|
The
intrinsic value related to total stock options outstanding was $2,971,665 as of
September 25, 2010 and $1,338,055 as of September 26, 2009. The intrinsic value related to vested stock
options outstanding was $1,617,326 as of September 25, 2010 and $242,167
as of September 26, 2009. The
aggregate intrinsic value is based on the exercise price and the Companys
closing stock price of $3.70 as of September 25, 2010 and $2.86 as of September 26,
2009.
Issuer Purchases of Equity Securities
The
Companys Board of Directors approved a stock re-purchase program that was publically
announced on Form 8-K filed with the SEC on September 26, 2008
whereby up to $2 million of common stock could be purchased from time to time
at the discretion of management (the 2008 program). The repurchased shares are generally held as
treasury stock and are available for general corporate purposes unless and
until such shares are retired by the Board.
The 2008 program expired August 23, 2009 and the Company continues
to evaluate its share repurchase opportunities.
Below is a table showing repurchased shares for each month included in
the period covered by this report:
Period
|
|
Total Number
of Shares
Repurchased
|
|
Weighted
Average
Price Paid
Per Share
|
|
Total Number of
Shares Purchased as
Part of Publicly
Announced Programs
|
|
Maximum that
may yet be
Purchased Under
the 2008 Program
|
|
|
|
|
|
|
|
|
|
|
|
12/28/08 2/28/09
|
|
|
|
$
|
|
|
|
|
$
|
1,272,878
|
|
|
|
|
|
|
|
|
|
|
|
3/1/09 - 03/28/09
|
|
367,957
|
|
$
|
1.28
|
|
367,957
|
|
$
|
(471,195
|
)
|
|
|
|
|
|
|
|
|
|
|
3/29/09 - 8/23/09
|
|
|
|
$
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
$
|
801,683
|
|
Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
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, and the
Private Securities Litigation Reform Act of 1995, and Inventure
Foods, Inc. (the Company) desires to take advantage of the safe harbor
provisions thereof. Therefore, the Company is including this statement
for the express purpose of availing itself of the protections of the safe
harbor with respect to all of such forward-looking statements. In this
Quarterly Report on Form 10-Q, the words anticipates, believes, expects,
intends, estimates, projects, will likely result, will continue, future
and similar terms and expressions identify forward-looking statements. The
forward-looking statements in this Quarterly Report on Form 10-Q reflect
the Companys current views with respect to future events and financial
performance. These forward-looking statements 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 Companys business strategy, acquisition-related risks, volatility of the
market price of the Companys common stock, par value $.01 per share (the Common
Stock), the possible de-listing of the Common Stock from the Nasdaq Capital
Market if the Company fails to satisfy the applicable listing criteria
(including a minimum share price) in the future 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
14
Table of
Contents
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 the Company Annual Report on
Form 10-K for the fiscal year ended December 26, 2009 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 revise publicly 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.
Results of Operations
Quarter
ended September 25, 2010 compared to the quarter ended September 26,
2009
Net
revenues for the third quarter of fiscal 2010 were $34.1 million, 13.8% higher
than last years third quarter net revenues of $29.9 million. Snack division net revenues were $22.4
million, up 7.4% over last years third quarter net revenues primarily due to
the continued success of our Boulder Canyon brand, up 89.5% over last years
third quarter net revenues. Rader Farms
net revenues were $11.7 million, up 28.6% over last years third quarter net
revenues. The Rader Farms increase was
primarily attributable to the strength of the Companys recent Jamba smoothie
launch, which recorded net revenue for the third quarter of $1.9 million. Excluding Jamba net revenues, Rader Farms
net revenues were up 7.4% over last years third quarter net revenues,
representing strong growth on the Rader Farms base business.
Gross
profit for the quarter ended September 25, 2010 increased 5.0% or $0.3
million to $7.1 million, as compared to the quarter ended September 26,
2009, and decreased as a percentage of net revenues (20.7% of net revenue for
2010 and 22.5% of net revenue for 2009).
The decrease in gross profit margin was primarily attributable to the
increased market prices of blueberries incurred during the harvest season, as
well as the Companys slotting fee investment for both the Jamba smoothie
launch as well as Boulder Canyon, which should only impact gross profit in the
short term.
Selling, general and administrative expenses were
$5.4 million in the third quarter of 2010, or 16.0% of net revenues for the
quarter, an increase of $1.2 million and 1.7 percentage points of net revenue,
as a result of the continued increase in marketing and sales support for both
the Jamba and Boulder brands.
For
the quarter ended September 25, 2010 and September 26, 2009 the
Companys provision for income taxes were $0.2 million and $0.9 million,
respectively. The effective tax rate for
the third quarter of 2010 was 12.1% compared with 40.0 % for the third quarter
of 2009. The 2010 period rates were lower primarily due to the impact of
research and development tax credits from prior periods, and domestic
production activity deductions.
Net income was $1.2 million, or $0.07 per basic and
diluted share, compared to net income of $1.3 million, or $0.07 per basic and
diluted share last year. The Company
completed a year-long research and development tax credit review which resulted
in a gain of $0.3 million based upon a look back of activity over the last
several years.
Nine months ended September 25, 2010 compared to the nine months ended
September 26, 2009
For
the nine months ended September 25, 2010 net revenues increased $7.3
million or 7.8% to $100.4 million compared to $93.1 million in the first nine
months of the previous year. Snack
division net revenues were $64.8 million, up 5.3% over net revenues for the
first nine months of 2009, led by the continued success of the Companys
Boulder Canyon products, up 61.2%. Rader
Farms net revenues were $35.6 million, up 12.9% over net revenues for the first
nine months of 2009. The Rader Farms
increase was a result of a strong volume increase and successful launch of our
Jamba smoothies line, which has contributed $2.6 million of net revenues for
the nine months ended September 25, 2010.
Excluding Jamba sales, Rader Farms sales were up 4.6% despite a double
digit price decrease in the fourth quarter of 2009.
Gross profit for the nine months ended September 25,
2010 was $21.7 million, or 21.6% of net revenues, compared to $19.2 million, or
20.6% of net revenues for the nine months ended September 26, 2009. This increase of $2.5 million, or 13.1%, was
attributable to the revenue growth at both Snack and Rader divisions as well as
the impact of increased pounds at all three plants, partially offset by the
industry wide impact of poor storage potatoes.
Selling, general and administrative expenses
increased to $15.4 million for the nine months ended September 25, 2010
from $13.1 million for the nine months ended September 26, 2009. Selling, general and administrative expenses
were 15.3% of total net revenues for the nine months ended September 25,
2010, up 1.2 percentage points or $2.3 million from the prior year. The increase is primarily a result of the
continued increases in marketing support for both Jamba and Boulder brands.
15
Table
of Contents
For
the nine months ended September 25, 2010 and September 26, 2009 the
Companys provision for income taxes were $1.8 million and $2.1 million,
respectively. The effective rate for the
nine months ended September 25, 2010 was 32.5% compared with 39.5% for the
comparable 2009 period. The 2010 period rates were lower primarily due to the impact
of research and development tax credits from prior periods, and domestic
production activity deductions.
Net income for the nine months ended September 25,
2010 was $3.8 million, or $0.21 per basic and diluted share, compared to net
income of $3.2 million, or $0.18 per basic and diluted share, in the prior
period.
Liquidity and Capital Resources
Net working capital was $10.9 million (a current ratio of 1.4:1) at September 25,
2010 and $8.0 million (a current ratio of 1.3:1) at December 26,
2009. For the nine months ended September 25,
2010, the Company generated cash flow of $3.9 million from operating
activities, invested $6.8 million in equipment, obtained $2.9 million in
interim financing for the purchase of certain capital equipment, borrowed a net
$1.0 million on its line of credit, utilized $0.9 million to pay down other
debt. For the nine months ended September 26,
2009, the Company generated cash flow of $0.3 million from operating
activities, invested $2.1 million in equipment, borrowed a net $3.2 million on
its line of credit, utilized $0.9 million to pay down other debt, and purchased
$0.5 million of treasury shares.
Inventories increased $5.8 million as compared to December 26, 2009
balances, primarily due to the processing of the 2010 Rader harvest season,
which commenced in June.
The
Companys Goodyear, Arizona manufacturing and distribution facility is subject
to a $1.6 million mortgage loan from Morgan Guaranty Trust Company of New York,
bears interest at 9.03% per annum and is secured by the building and the land
on which it is located. The loan matures on July 1, 2012; however monthly
principal and interest installments of $16,825 are determined based on a
twenty-year amortization period.
The
Companys Bluffton, Indiana manufacturing and distribution facility was
purchased for $3.0 million in December, 2006. The facility is subject to a $2.3
million mortgage loan from U.S. Bank National Association, bears interest at
the 30 day LIBOR plus 165 basis points and is secured by the building and the
land on which it is located. The interest rate associated with this debt
instrument was fixed to 6.85% via an interest rate swap agreement with U.S.
Bank National Association in December 2006. The loan matures in December, 2016; however
monthly principal and interest installments of $18,392 are determined based on
a twenty-year amortization period.
To fund the acquisition of Rader
Farms the Company entered into a Loan Agreement (the Loan Agreement) with
U.S. Bank National Association (U.S. Bank).
Each of our subsidiaries is a guarantor of the Loan Agreement, which is
secured by a pledge of all of the assets of our consolidated group. The
borrowing capacity available to us under the Loan Agreement consists of notes
representing:
·
a $15,000,000 revolving line of credit maturing on
June 30, 2011; based on asset eligibility, there was $4.1 million of
borrowing availability under the line of credit at September 25, 2010.
·
an equipment term loan, secured by the equipment acquired,
subject to a $5.8 million mortgage loan from U.S. Bank National Association,
bears interest at the 30 day LIBOR plus 165 basis points. The loan matures in
May, 2014 and monthly principal installments are $71,429 plus interest and
·
a real estate term loan, secured by a leasehold interest in
the real property we are leasing from the former owners of Rader Farms in
connection with the Acquisition, subject to a $4.0 million real estate term
loan from U.S. Bank National Association, bears interest at the 30 day LIBOR
plus 165 basis points. The interest rate
associated with this debt instrument was fixed to 4.28% via an interest rate
swap agreement with U.S. Bank National Association in January 2008. The
loan matures in July, 2017; however monthly principal and interest installments
of $36,357 are determined based on a fifteen-year amortization period.
All
borrowings under the revolving line of credit will 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). The term loan will bear interest at LIBOR, plus the LIBOR Rate
Margin (as defined in the term loan note).
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.
The agreement requires the Company to maintain compliance with certain
financial covenants, including a minimum tangible net worth, a minimum fixed
charge coverage ratio and a debt to equity ratio. At September 25, 2010,
the Company was in compliance with all of the financial covenants.
16
Table of
Contents
During
the nine months ending September 25, 2010, the Company obtained $2.9 million
in interim financing from U.S. Bank in association with the purchase of certain
capital equipment for its Bluffton, Indiana facility. Conversion of this arrangement into a
permanent capital lease obligation with US Bank was finalized on September 29,
2010.
During
the most recent fiscal quarter, the Company commenced a $1.7 million capital
improvement plan to add additional capacity in the Goodyear facility which is
expected to sustain growth and improve efficiencies. This project is expected to be completed
during the first fiscal quarter of 2011.
Interest Rate Swaps
See
Footnote 5 Long-Term Debt in the Companys Notes to Unaudited Condensed
Consolidated Financial Statements for
detail regarding the Companys interest rate swaps.
Contractual
Obligations
The Companys future contractual obligations consist
principally of long-term debt, operating leases, minimum commitments regarding
third party warehouse operations services, remaining minimum royalty payments
due licensors pursuant to brand licensing agreements and severance charges to
terminated executives. As of September 25,
2010 there have been no material changes to the Companys contractual
obligations since its December 26, 2009 fiscal year end, other than
scheduled payments.
In
October 2010, the Company completed its $3.4 million plan to expand its
Bluffton, Indiana manufacturing facility, adding extruded snack production
capabilities during the third fiscal quarter. The addition of the latest
state-of-the-art extrusion technology will expand manufacturing capabilities to
include sheeted dough, pellet and extruded baked snacks.
Managements Plans
In
connection with the implementation of the Companys business strategy, the
Company 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. Management believes that the Company will
generate positive cash flow from operations during the next twelve months,
which, along with its existing working capital and borrowing facilities, will
enable the Company to meet its operating cash requirements for the next twelve
months, including planned capital expenditures. The belief is based on current
operating plans and certain assumptions, including those relating to the Companys
future revenue levels and expenditures, industry and general economic
conditions and other conditions. For instance, if current general economic
conditions continue or 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, the Company may require future debt or equity financings to meet its
business requirements. There can be no assurance that any required financings
will be available or, if available, will be on terms attractive to the Company.
Critical
Accounting Policies and Estimates
There have been no
significant changes to the Companys critical accounting policies and estimates
since the filing of its Form 10-K for the year ended December 26,
2009.
Item 3. Quantitative
and Qualitative Disclosures about Market Risk
This
information has been omitted pursuant to Item 305(e) of Regulation S-K,
promulgated under the Securities Act of 1933, as amended.
17
Table of
Contents
Item 4. Controls and Procedures
Our Chief Executive Officer and Chief Financial
Officer evaluated the effectiveness of our disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) as of the end of the period covering this report. Based on
this evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures are effective to provide
reasonable assurance that information required to be disclosed in the reports
that are filed or submitted under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified by the Securities and
Exchange Commissions rules and forms and that our disclosure controls and
procedures are designed to ensure that information required to be disclosed in
the reports that we file or submit under the Exchange Act is accumulated and
communicated to our management including our Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required
disclosure.
No change occurred in our internal
controls over financial reporting (as defined in Rule 13a-15(f) of
the Exchange Act) during the Companys most recent fiscal quarter that has
materially affected, or is reasonably likely to materially affect our internal
control over financial reporting.
Part II. Other
Information
Item 1. Legal Proceedings
The Company is 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 the financial statements taken as a whole.
Item 1A. Risk Factors
During the quarter and nine months ended September 25, 2010, there
were no material changes from the risk factors as previously disclosed in the
Companys Annual Report on Form 10-K for the fiscal year ended
December 26, 2009.
Item 2. Unregistered Sales of
Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior
Securities
None.
Item 5. Other Information
None.
Item 6. Exhibits
(a)
|
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).
|
|
|
|
|
32.1
|
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.
|
18
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 9,
2010
|
|
INVENTURE
FOODS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/
Terry McDaniel
|
|
|
|
|
Terry
McDaniel
|
|
|
|
|
Chief
Executive Officer
|
|
|
|
|
(Principal
Executive Officer)
|
19
Table of
Contents
EXHIBIT INDEX
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).
|
|
|
|
32.1
|
|
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.
|
20
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