SNAK Inventure Foods, Inc. (MM)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 28, 2013

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)

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

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes   o No   x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes   o No   x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   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 if disclosure of delinquent filers in response to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   x

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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes   o No   x

The aggregate market value of the voting stock (common stock) held by non-affiliates of the registrant was approximately $119.2 million based upon the closing market price on June 29, 2013, the last business day of the registrant’s most recently completed second fiscal quarter.

The number of issued and outstanding shares of the registrant’s common stock, $.01 par value, as of March 7, 2014 was 19,411,493.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the registrant’s 2014 Annual Meeting of Stockholders to be held on May 14, 2014 are incorporated herein by reference in Part III of this Form 10-K to the extent stated herein.

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INVENTURE FOODS, INC. AND SUBSIDIARIES

ANNUAL REPORT ON FORM 10-K

Year Ended December 28, 2013

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Cautionary Statement Regarding Forward-Looking Statements

Our disclosure and analysis in this Annual Report on Form 10-K and in our 2013 Annual Report to Stockholders contain “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 Annual Report on Form 10-K reflect the Company’s 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 Annual Report on Form 10-K will in fact transpire or prove to be accurate.  Readers are cautioned to consider the specific risk factors described herein and in “Item 1A. Risk Factors” of this Form 10-K, 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 “Item 1A. Risk Factors” of this Form 10-K.  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.

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For the fiscal years 2013, 2012 and 2011, net revenues totaled $215.6 million, $185.2 million and $162.2 million, respectively, and T.G.I. Friday’s® brand salted snacks represented 18%, 25% and 28% of our total net revenues in 2013, 2012 and 2011, respectively.  We also manufacture private label and co-branded fruit and snack chip products for several grocery chains and natural stores and co-pack products for other snack manufacturers.  While extremely price competitive, we believe that such arrangements provide a profitable opportunity for us to improve the capacity utilization of our facilities.

Business Strategy

Our business strategy is to continue building a diverse portfolio of high quality, competitively priced healthy/natural food brands and indulgent specialty snack food brands through expansion of existing brands, licensing, acquisition and development.  Our goals are to (i) capitalize on healthy/natural and indulgent specialty snack food brand opportunities, (ii) deliver incremental category growth for retailers, (iii) provide product innovation targeted to a defined consumer segment, (iv) build relationships with major retailers in all channels of distribution by providing them higher margins, excellent customer service and constant innovation and (v) maintain a diverse set of brands, products, customers and channels.  The primary elements of our long-term business strategy are as follows:

Develop, Acquire or License Innovative Healthy/Natural and Indulgent Specialty Snack Food Brands .  A significant element of our business strategy is to develop, acquire or license new innovative healthy/natural and indulgent specialty snack food brands that provide a strategic fit with our existing business and that have strong national brand recognition in order to expand, complement and diversify our existing business.

Broaden Distribution of Existing Brands .  We plan to increase distribution and the market share of our existing branded products through selected trade activity in various existing or new markets and channels.  Marketing efforts may include, among other things, trade advertising and promotional programs with distributors and retailers, in-store advertisements, in-store displays and limited consumer advertising, public relations and coupon programs.

Broaden Distribution of Private Label .  We plan to increase distribution of our private label products to existing or new customers.  This will help leverage our infrastructure and capacity and is expected to improve profit margins as there are no related advertising and promotional costs.  Our manufacturing and distribution of private label products enhances our ability to partner with key retailers.

Develop New Products for Existing Brands .  We plan to continue our innovation activities to identify and develop (i) new line extensions for our brands, such as new flavors or products, and (ii) new food segments in which to expand the presence of our brands.

Leverage Infrastructure and Capacity .  Our Bluffton, Goodyear, Lynden, Salem, Jefferson and Thomasville facilities are currently operating at approximately 60%, 80%, 70%, 33%, 75% and 65% of their respective manufacturing capacities.  We intend to continue to expand our branded product lines, as well as secure new manufacturing opportunities in private label and co-packing arrangements.  In addition, we plan to continue capital investment in our plants and improve operating efficiencies.

Pursue Acquisitions .  We continue to evaluate acquisition opportunities in the specialty snack food area where we can use our competencies in operations, sales, marketing and distribution in order to drive revenue and profit growth.

Improve Profit Margins .  We plan to increase our profit margins through increased long-term revenue growth, improved operating efficiencies, and higher margin new products.  We believe that improved profit margins are possible with the achievement of the business strategies discussed above.

Manufacturing

Our Company-owned manufacturing facility in Bluffton, Indiana produces snack products utilizing a sheeting and frying process with three fryer lines that can produce up to approximately 9,000 pounds per hour and an extruded line capable of producing 2,000 pounds per hour.  Previously introduced production capabilities at our Bluffton, Indiana facility allow us to use existing equipment to make additional snacks, including pellet snacks, which are entirely different in

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appearance and taste from our other product lines.  We believe this technology will help expand our product lines and facilitate growth.  In 2013, we installed additional packaging capacity to meet increasing demand on branded, licensed and contract manufacturing opportunities.  We also produce snack products for customers under private label and co-packing agreements.  Our Indiana facility is currently operating at approximately 60% of processing capacity.

Our Company-owned manufacturing facility in Goodyear, Arizona has the capacity to produce up to approximately 4,600 pounds of potato chips per hour, including 2,500 pounds of batch-fried potato chips per hour and 2,100 pounds of continuous-fried potato chips per hour.  Poore Brothers®, Bob’s Texas Style®, Boulder Canyon® Natural Foods, co-packing and private label branded potato chips are produced in a variety of flavors utilizing a batch-frying process.  While conventional continuous line cooking methods may produce higher production volume, we believe that our batch-frying process is superior and produces premium potato chip products with enhanced crispness and distinctive flavor.  Our Arizona facility is currently operating at approximately 80% of packaging capacity.

Our Company-owned Rader Farms farming facility in Lynden, Washington has the capacity to grow up to eight million pounds of raspberries and blueberries per year.  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 and packaged for sale and distribution nationally to wholesale customers under the Rader Farms® brand, as well as through store brands.  We also use third-party processors for certain products.  Our individually quick frozen (“IQF”) processing facilities located at the same location have the capacity to apply the IQF process to 40 million pounds of berries annually.  In 2013, we invested in new processing equipment to more effectively and efficiently cool the fruit after being harvested, thereby increasing quality.  Additionally, we added a packaging line to increase capacity.  Our Washington processing facility is operating at approximately 70% of packaging capacity.

In May 2013, we acquired the berry processing business of Willamette Valley Fruit Company.  Willamette Valley Fruit Company has two plants in Salem, Oregon.  Both plants occupy leased facilities and process and package marionberries, other blackberries, blueberries, strawberries, cranberries, rhubarb, other fruits and vegetables for industrial customers, as well as contract manufacturing and private label brands.  The processing facility has four IQF lines capable of freezing 21,000 pounds per hour of fruit during peak production.  As this plant is seasonal with the fruit harvests, it operates at approximately 90% of capacity in the peak production months of June through September and at approximately 15% of capacity the remainder of the year.  The packaging plant has the ability to package up to approximately 19 million pounds annually and is currently operating at 33% of capacity.

In November 2013, we acquired Fresh Frozen Foods.  Fresh Frozen Foods has two plants located in Jefferson, Georgia and Thomasville, Georgia which process and package IQF vegetables, breads and other items sold under the Fresh Frozen TM brand.  The plant in Jefferson operates as a packaging facility capable of packaging approximately 80 million pounds of products annually.  This plant is currently operating at approximately 75% of capacity.  The Thomasville facility is a processing facility which has one IQF line capable of producing approximately 50 million pounds of IQF carrots, peas, potatoes, onions and other vegetables and fruits annually.  This plant is operating at approximately 65% of capacity.

Marketing and Distribution

We conduct our marketing efforts through three principal sets of activities: (i) consumer marketing in print, outdoor, digital and social media; (ii) consumer incentives such as coupons; and (iii) trade promotions to support price features, displays and other merchandising of our products by our customers.

Our products are sold through a number of channels, including: grocery, natural, mass merchandisers, drug, club, value, vending, food service, convenience store, industrial and international.  Our products are distributed through Company-owned and satellite warehouses, direct store delivery, distribution centers and other facilities.

Suppliers

The principal raw materials we utilize are potatoes, potato flakes, potato starch, corn, oils, seasonings, berries and vegetables.  We believe that the raw materials we need to produce our products are readily available from numerous suppliers on commercially reasonable terms.  Potatoes, potato flakes and corn are widely available year-round, although they are subject to seasonal price fluctuations.  We use a variety of oils and seasonings in the production of our snack products and believe that alternative sources for such oils and seasonings, as well as alternative oils and seasonings, are readily abundant

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and available.  We may lock in prices for raw materials, such as oils, as we deem appropriate.  We freeze an average of 40% of our total annual berry requirements and 35% of our total annual vegetable requirements in our own processing facilities, and augment that production by purchasing additional frozen berries and vegetables to meet customer demand.  We purchase both fresh berries and vegetables from local farmers and already frozen berries and vegetables for our repackaging business, and we purchase yogurt in cube form from a third-party company for use in our at home smoothie kits.  We use packaging materials in our snack and frozen business.

We choose our suppliers based primarily on price, quality, availability and service.  Although we believe that our required products and ingredients are readily available, and that our business success is not dependent on any single supplier, the failure of certain suppliers to meet our performance specifications, quality standards or delivery schedules could have a material adverse effect on our business and results of operations.  In particular, a sudden scarcity, a substantial price increase, or an unavailability of product ingredients could materially adversely affect our operations.  In such circumstances, alternative ingredients may not be available when needed or, if available, on terms acceptable to the Company.

Customers

Costco accounted for 35%, 35% and 30% of the Company’s 2013, 2012 and 2011 net revenues, respectively.  With the addition of our Willamette Valley Fruit Company and Fresh Frozen Foods businesses, Costco accounted for 27% of consolidated 2013 pro forma net revenues (see Note 2 to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K).  The remainder of our revenues were derived from sales to customers, grocery chains, club stores, regional distributors and other manufacturers, none of which individually accounted for more than 10% of our net revenues in 2013.  A decision by any of our major customers to cease or substantially reduce their purchases could have a material adverse effect on our business.

The majority of our revenues are attributable to external customers in the United States.  We do sell to Canadian and international customers as well, however, the revenues attributable to these customers are immaterial.  All of our assets are located in the United States.

Competition

Our snack products generally compete against other snack foods, including potato chips, tortilla chips, popcorn, cheese snacks and other specialty snack brands.  The snack food industry is large and highly competitive and is dominated by large food companies, including Frito-Lay, Inc., a subsidiary of PepsiCo, Inc., The Kellogg Company, ConAgra Foods, Inc., Diamond Foods, Inc., General Mills, Inc. and Snyder’s-Lance, Inc.  These companies possess substantially greater financial, production, marketing, distribution and other resources than us, and their brands are more widely recognized than our products.  Numerous other companies that are actual or potential competitors offer products similar to ours, and some of these have greater financial and other resources (including more employees and more extensive facilities) than us.  In addition, many competitors offer a wider range of products than we offer.  Local or regional markets often have significant smaller competitors, many of whom offer products similar to ours.  Expansion of our operations into new markets has and will continue to encounter significant competition from national, regional and local competitors that may be greater than that encountered by us in our existing markets.  In addition, such competitors may challenge our position in our existing markets.  While we believe that we have innovative products and methods of operation that will enable us to compete successfully, no assurance can be given that we will be able to do so when faced with such competition.

Our frozen berry products generally compete against other packaged berries on the basis of quality and price.  Key competitors include Townsend Farms, Inc., Sunopta Inc., Cascadia Farm of Small Planet Foods, Inc., Wyman’s of Maine and Dole Food Company, Inc.  Obtaining freezer space at supermarkets and club stores is critical to successfully compete with other berry products, as supermarkets and club stores will frequently only carry one brand of frozen berry products, contrasted to snack products where multiple brands are typically carried.

Our frozen vegetable products generally compete against other packaged vegetables on the basis of quality and price.  Key competitors include the Birds Eye Frozen division of Pinnacle Foods, Inc., General Mills, Inc., The Pictsweet Company and Hanover Foods Corp.  Obtaining freezer space at supermarkets and club stores is critical to successfully compete with other vegetable products, as supermarkets and club stores will frequently only carry a few brands of frozen vegetable products.

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Our smoothie kits generally compete against other packaged smoothie kits on the basis of quality and price.  Key competitors include Yoplait® of  General Mills, Inc., Dole Food company, Inc. smoothies and a number of smaller brands. Obtaining freezer space at grocery, mass merchandiser and club stores is critical to successfully compete with other smoothie products, as grocery, mass merchandisers and club stores will frequently only carry two to three brands of frozen smoothie products, contrasted to snack products where multiple brands are typically carried.

The principal competitive factors affecting the markets of our products include product quality and taste, brand awareness among consumers, access to shelf or freezer space, price, advertising and promotion, varieties offered, nutritional content, product packaging and package design.  We compete in our markets principally on the basis of product quality and taste.  Frozen products are produced at our Lynden, Washington; Salem, Oregon and Thomasville, Georgia facilities utilizing IQF technology, which we do not have exclusive rights for.  Products produced at our Bluffton, Indiana facility involve the use of unique technology including sheeted dough and pellet snacks.  We do not have exclusive rights for this technology.  The taste and quality of the products we produce at our Goodyear, Arizona facility are largely attributable to two elements of our manufacturing process: batch-frying and distinctive seasonings to produce a variety of flavors.  We do not have exclusive rights to the use of either element.  Consequently, competitors may incorporate such elements into their own processes.

Government Regulation

The manufacture, labeling and distribution of our products are subject to the rules and regulations of a variety of federal, state and other governmental agencies.  There can be no assurance that new laws or regulations will not be passed that could require us to alter the taste or composition of our products or impose other obligations on us.  New or increased government regulation of the food industry, including, but not limited to, laws or regulations related to food safety, chemical composition, production processes, traceability, product quality, packaging, labeling and product recalls, could adversely impact our results of operations by increasing production costs, or restricting our methods of operation and distribution.  Such changes could also affect sales of our products and have a material adverse effect on us.  These regulations may address food industry or society factors, such as obesity, nutritional and environmental concerns and diet trends.  In addition to laws relating to food products, our operations are governed by laws relating to environmental matters, workplace safety and worker health.  We believe that we presently comply in all material respects with such laws and regulations.

Employees

As of December 28, 2013, we had 785 total employees.  There are 662 employees in manufacturing and distribution, composed of 455 full-time, 56 part-time, and 151 temporary positions.  There are 47 employees in sales and marketing, and 76 in administration and finance.  Our employees are not represented by any collective bargaining organization, and we have never experienced a work stoppage.  We believe that our relations with our employees are good.

Patents, Trademarks and Licenses

We own the following trademarks in the United States: Boulder Canyon®, Canyon Cut®, Rader Farms®, Poore Brothers®, Intensely Different®, Texas Style®, Tato Skins®, O’Boisies®, Pizzarias®, Braids®, Willamette Valley Fruit Company™ and Fresh Frozen™.  We consider our trademarks to be of significant importance in our business.  We are not aware of any circumstances that would have a material adverse effect on our ability to use our trademarks.

From time to time, we enter into licenses with owners of distinctive brands to produce branded snack food products.  These licenses may require us to make royalty payments on sales and to achieve certain minimum sales levels by certain dates during the contract term.  Any termination of any of our license agreements, whether at the expiration of their term or prior thereto, could have a material adverse effect on our financial condition and results of operations.

In 2000, we launched our T.G.I. Friday’s® brand snack products under a license agreement with T.G.I. Friday’s, which expires in May 2014.  In July 2009, we entered into a license agreement with Jamba Juice Company, which expires in 2035, and, in 2010, launched a line of Jamba® branded blend-and-serve smoothie kits.  In January 2011, we entered into a license agreement with Nathan’s Famous Corporation, which expires in 2031, and launched a line of Crunchy Crinkle Fries.  In June 2012, we entered into a license agreement with Vidalia Brands, Inc. to launch a line of onion flavored snacks, which expires in 2019.  In November 2012, we entered into a license agreement with Seattle’s Best Coffee LLC, and created a line of blend-and-serve frozen coffee drink kits with an initial term expiring in November 2017, which automatically extends for a five-year period upon meeting certain minimum sales targets.

We produce T.G.I. Friday’s® brand snack products, Tato Skins® brand potato crisps and Boulder Canyon® Natural Foods Rice and Bean, Hummus Chips, Garden Select Vegetable Crisps and Ancient Grains utilizing a sheeting and frying process that includes technology that we license from a third party.  Pursuant to such license agreement, we have a royalty-bearing license to use the technology in the United States, Canada and Mexico until such time as the parties mutually agree to terminate the license agreement.  Even though the patents for this technology expired in December 2006, in consideration for

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the use of this technology, we are required to make royalty payments on sales of products manufactured utilizing the technology until such termination date.  However, should products substantially similar to Tato Skins®, O’Boisies® and Pizzarias® become available for any reason in the marketplace by any manufacturer other than us which results in a sales decline of 10% or more, any royalty obligation for the respective products shall cease.

Seasonality

The food products industry is seasonal.  Consumers tend to purchase our snack products at higher levels during the major summer holidays and also at times surrounding major sporting events throughout the year.  Additionally, smoothie sales tend to peak during the warmer summer months.  Our industrial berry business at Willamette Valley Fruit Company is generally slower during the first quarter of the year.  Additionally, we may face seasonal price increases for raw materials.

Industry Practices

Our agreements with customers are generally short-term, primarily due to the nature of our products, industry practices and fluctuations in supply, demand and price for such products. In certain instances where we are selling further processed products to large customers, we may enter into written agreements whereby we will act as the exclusive or preferred supplier to the customer, with pricing terms that are either fixed or variable.

Research and Development

We incur research and development costs to support growth through the introduction of new products and the improvement in quality of existing products.  We recorded $0.3 million, $0.2 million and $0.3 million in fiscal years 2013, 2012 and 2011, respectively, for research and development costs.

Available Information

Our Internet address is www.inventurefoods.com. We make available at this address, free of charge, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (the “SEC”). In this Annual Report on Form 10-K, we incorporate by reference as identified herein certain information from parts of our proxy statement for the 2014 Annual Meeting of Stockholders, which we will file with the SEC and will be available free of charge on our website. Reports of our executive officers, directors and any other persons required to file securities ownership reports under Section 16(a) of the Exchange Act are also available through our website. Information contained on our website is not part of this Annual Report.

You may also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549.  You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  The SEC also maintains an Internet website located at http://www.sec.gov that contains the information we file or furnish electronically with the SEC.

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operations and otherwise require additional management, operational and financial resources.  Moreover, we may not be able to successfully integrate acquired companies or their management teams into our operating structure, retain management teams of acquired companies on a long-term basis, or operate acquired companies profitably.  Acquisitions may also involve a number of other risks, including adverse short-term effects on our operating results, dependence on retaining key personnel and customers, and risks associated with unanticipated liabilities or contingencies.

Changes in the legal and regulatory environment could limit our business activities, increase our operating costs, reduce demand for our products or result in litigation.

The conduct of our businesses, including the production, storage, distribution, sale, display, advertising, marketing, labeling, health and safety practices, transportation and use of many of our products, are subject to various laws and regulations administered by federal, state and local governmental agencies in the United States, as well as to laws and regulations administered by government entities and agencies outside the United States in markets in which our products are made, manufactured or sold.  These laws and regulations and interpretations thereof may change, sometimes dramatically, as a result of a variety of factors, including political, economic or social events.  Such changes may include changes in: food and drug laws; laws related to product labeling, advertising and marketing practices; laws regarding the import or export of our products or ingredients used in our products; laws and programs restricting the sale and advertising of certain of our products; laws and programs aimed at reducing, restricting or eliminating ingredients present in certain of our products; laws and programs aimed at discouraging the consumption or altering the package or portion size of certain of our products; increased regulatory scrutiny of, and increased litigation involving, product claims and concerns regarding the effects on health of ingredients in, or attributes of, certain of our products; state consumer protection laws; taxation requirements, including the imposition or proposed imposition of new or increased taxes or other limitations on the sale of our products; competition laws; anti-corruption laws; employment laws; privacy laws; laws regulating the price we may charge for our products; and environmental laws.  New laws, regulations or governmental policy and their related interpretations, or changes in any of the foregoing, including taxes or other limitations on the sale of our products, ingredients contained in our products or commodities used in the production of our products, may alter the environment in which we do business and, therefore, may impact our results or increase our costs or liabilities.

Our operations and financial conditions may be impacted by general economic conditions and an economic downturn.

Recessionary pressures from an overall decline in U.S. economic activity could adversely impact our results of operations.  Economic uncertainty may reduce consumer spending and could result in increased pressure from competitors or customers to reduce the prices of our products and/or limit our ability to increase or maintain prices, which could lower revenues and profitability.  Instability in the financial markets may impact our ability or increase the cost to enter into new credit agreements in the future.  Additionally, it may weaken the ability of customers, suppliers, distributors, banks, insurance companies and other business partners to perform in the normal course of business, which could expose us to losses or disrupt supply of inputs used to conduct our business.  If one or more key business partners fail to perform as expected or contracted, our operating results could be negatively impacted.

We may incur significant future expenses in connection with the implementation of our business strategy.

We strive to achieve our long-term vision of being a leading marketer and manufacturer of healthy/natural and indulgent specialty snack food brands.  Our efforts are subject to the substantial risks, expenses and difficulties frequently encountered in the implementation of a business strategy.  If we are unsuccessful in developing, acquiring and/or licensing new brands, and increasing distribution and sales volume of our existing products, our operating results could be negatively impacted.  Even if we are successful, this business strategy may require us to incur substantial additional expenses, including advertising and promotional costs, “slotting” expenses (i.e., the cost of obtaining shelf or freezer space in certain grocery stores), and integration costs of any future acquisitions.  We also may be unsuccessful at integrating any future acquisitions.

We may not be able to obtain the additional financing we need to implement our business strategy.

A significant element of our business strategy is the development, acquisition and/or licensing of innovative specialty food brands, for the purpose of expanding, complementing and/or diversifying our business.  In connection with our previous acquisitions, we borrowed funds or assumed additional indebtedness in order to satisfy a substantial portion of the consideration required to be paid by us.  We may, in the future, require additional third-party financing (debt or equity) as a result of any future operating losses, in connection with the expansion of our business through non-acquisition means, in connection with any additional acquisitions completed by us, or to provide working capital for general corporate purposes.  Third-party financing may not be available when required or, if available, may not be on terms attractive to us.  Any third-party financing obtained by us may result in dilution of the equity interests of our stockholders.

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We are required to maintain certain ongoing financial covenants under our credit facility, and if we fail to meet those covenants or otherwise suffer a default thereunder, our lender may accelerate the payment of such indebtedness.

At December 28, 2013, we had outstanding indebtedness in the aggregate principal amount of $71.2 million.

Our credit agreement (the “Credit Agreement”) with a syndicate of lenders led by U.S. Bank National Association (“U.S. Bank”) is secured by substantially all of our assets.  Our obligations under the Credit Agreement are guaranteed by our subsidiaries.  We are required to comply with certain financial covenants pursuant to the Credit Agreement so long as borrowings from U.S. Bank remain outstanding.  Should we be in default under any of such covenants, U.S. Bank shall have the right, upon written notice and after the expiration of any applicable period during which such default may be cured, to demand immediate payment of all of the then unpaid principal and accrued but unpaid interest under the Credit Agreement.  At December 28, 2013, we were in compliance with all covenants of the Credit Agreement.

As we execute our business strategy, we may not be able to remain in compliance with our financial covenants.  Any acceleration of the borrowings under the Credit Agreement prior to the applicable maturity dates could have a material adverse effect upon our business, financial condition and results of operations.  See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

We may incur losses and costs as a result of any product recalls we are required to make or product liability claims that may be brought against us .

We may need to recall some of our products if they become adulterated or if they are mislabeled.  We may also be liable if the consumption of any of our products causes injury.  Such injury could result from tampering by unauthorized third parties; product contamination (such as listeria, e-coli, and salmonella) or spoilage; the presence of foreign objects, substances, chemicals, and other agents; residues introduced during the growing, storage, handling or transportation phases; or improperly formulated products.  A widespread product recall could result in significant losses due to the costs of a recall, the destruction of product inventory and lost sales due to the unavailability of product for a period of time.  We could also suffer losses from a significant product liability judgment against us.  The product liability and product recall insurance maintained by us may not be adequate to cover any loss or exposure for product liability, and such insurance may not continue to be available on terms acceptable to us.  Any product liability claim not fully covered by insurance, as well as any adverse publicity resulting from a product liability claim or product recall, could have a material adverse effect on our operating results, and could also result in adverse publicity, damage to our reputation and a loss of consumer confidence in our products.  In addition, our results could be adversely affected if consumers lose confidence in the safety and quality of our products, ingredients or packaging, even in the absence of a recall or a product liability case.

Concerns with the safety and quality of our food products or ingredients could negatively impact our brand image and profitability .

Our success depends on our ability to maintain consumer confidence in the safety and quality of our products or ingredients.  Our success also depends on our ability to maintain the brand image of our existing products, build up brand image for new products and brand extensions, and maintain our corporate reputation.  We cannot assure you, however, that our commitment to product safety and quality and our continuing investment in advertising and marketing will have the desired impact on our products’ brand image and on consumer preferences. Product safety or quality issues, actual or perceived, or allegations of product contamination, even when false or unfounded, could tarnish the image of the affected brands and may cause consumers to choose other products.  Allegations of product safety or quality issues or contamination, even if untrue, may require us from time to time to recall a product from all of the markets in which the affected production was distributed.  Such issues or recalls could negatively affect our profitability and brand image.

A significant portion of our revenues are derived from one product and one customer.

In 2013, 27% of our net revenues were attributable to Rader Farms®/Kirkland® co-branded frozen berry product sales to Costco.  Overall, Costco accounted for 35% of our 2013 net revenues.  Taking into account our Willamette Valley Fruit Company and Fresh Frozen Foods acquisitions, Costco accounted for 27% of consolidated 2013 pro forma net revenues (see Note 2 to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K).  A decision by any major customer to cease or substantially reduce its purchases, or a decrease in the popularity of frozen berries during any year, could have a material adverse effect on our operating results, and such decision by Costco would have a material adverse effect on our business, financial condition and results of operations.

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We depend on a license agreement for the right to sell our T.G.I. Friday’s® brand.

For the year ended December 28, 2013, 18% of our net revenues were attributable to the T.G.I. Friday’s® brand products, which are manufactured and sold by us under our license agreement with T.G.I. Friday’s that expires in May 2014.  The license agreement imposes certain requirements and conditions on us (including, without limitation, minimum sales targets).  Our failure to comply with these requirements and conditions could result in the early termination of the license agreement by T.G.I. Friday’s.  If we are unsuccessful in negotiating an extension of this license agreement, or the license agreement is not renewed at the expiration of its term or is terminated prior thereto, our business, financial condition and results of operations would be materially and adversely affected.

Our business may be adversely affected by oversupply of snack and frozen products at the wholesale and retail levels and seasonal fluctuations.

Profitability in the food product industry is subject to oversupply of certain snack and frozen products at the wholesale and retail levels, which can result in our products going out of date before they are sold.  The snack and frozen products industry is also seasonal.  Consumers tend to purchase our snack products at higher levels during the major summer holidays and also at times surrounding the major sporting events throughout the year.  Our industrial berry business at Willamette Valley Fruit Company is generally slower during the first quarter of the year.  Additionally, we may face seasonal price increases for raw materials.  Such seasonal costs could materially and adversely affect our operating results in any given quarter.

We may incur substantial costs in order to market our products.

Successful marketing of our products generally depends upon obtaining adequate retail shelf space for product display, particularly in supermarkets.  Frequently, food manufacturers and distributors such as us, incur additional costs in order to obtain additional shelf space.  Whether or not we incur such costs in a particular market is dependent upon a number of factors, including demand for our products, relative availability of shelf space and general competitive conditions.  We may incur significant shelf space or other promotional costs as a necessary condition of entering into competition or maintaining market share in particular markets or stores.  If incurred, such costs may have a material adverse effect on our operating results.

We may not be able to respond successfully to shifting consumer preferences.

Consumer preferences evolve over time and are extremely difficult to predict.  Our success depends in part on our ability to timely respond to current market trends and anticipate changing consumer tastes and dietary habits and to develop and license new products that appeal to such preferences, including concerns of consumers regarding health and wellness, obesity, product attributes, and ingredients.  Introduction of new products and product extensions requires significant development and marketing investment.  If our products fail to meet consumer preferences, or we fail to introduce new and improved products on a timely basis, then the return on that investment will be less than anticipated and our strategy to grow sales and profits with investments in marketing and innovation will be less successful.  Similarly, demand for our products could be affected by increased attention to nutritional values, such as the sodium, fat, protein, or calorie content of different products, or concerns regarding the health effects of specific ingredients, such as gluten, soybeans, nuts, and oils.  If consumer demand for our products declines, our sales volumes and our business could be negatively affected.

The loss of certain key employees could adversely affect our business .

Our success is dependent in large part upon the abilities of our executive officers, including Terry McDaniel, Chief Executive Officer, and Steve Weinberger, Chief Financial Officer.  Our business strategy will challenge our executive officers, and the inability of such officers to perform their duties or our inability to attract and retain other highly qualified personnel could have a material adverse effect upon our operating results.

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We may not be able to successfully implement our strategy to expand our business internationally.

We plan to expand sales to Canadian customers and are exploring other international market opportunities for our brands.  Such expansion may require significant management attention and financial resources and may not produce desired levels of revenue.  International business is subject to inherent risks, including longer accounts receivable collection cycles, difficulties in managing operations across disparate geographical areas, difficulties enforcing agreements and intellectual property rights, fluctuations in local economic, market and political conditions, compliance requirements with U.S. and foreign export regulations, potential adverse tax consequences and currency exchange rate fluctuations.

We rely on information technology in our operations, and any material failure, inadequacy, interruption or breach of security of that technology could harm our ability to effectively operate our business.

We rely on information systems across our operations, including for management, sales, and order processing. Our ability to effectively manage our business and coordinate the sales and delivery of our products depends significantly on the reliability and capacity of these systems.  Like other companies, our information technology systems may be vulnerable to a variety of interruptions due to events beyond our control, including, but not limited to, natural disasters, terrorist attacks, telecommunications failures, computer viruses, hackers, and other security issues.  The failure of these systems to operate effectively, problems with transitioning to upgraded or replacement systems, a material network breach in the security of these systems as a result of cyber-attack, or any other failure to maintain a continuous and secure cyber network could result in substantial harm or inconvenience to us or our customers.  This could include the theft of our intellectual property or trade secrets, or the improper use of personal information or other “identity theft.”  Each of these situations or data privacy breaches may cause delays in customer service, reduce efficiency in our operations, require significant capital investments to remediate the problem, or result in negative publicity that could harm our reputation and results.

Risks Related to the Frozen Products Segment

Farming is subject to numerous inherent risks including changes in weather conditions or natural disasters that can have an adverse impact on crop production and materially affect our results of operations.

We are subject to the risks that generally relate to the agricultural industry.  Adverse changes in weather conditions and natural disasters, such as windstorms, floods, earthquakes, droughts, extreme temperatures or pestilence, may affect the crop quality and size.  In extreme cases, entire harvests may be lost in some geographic areas.  These factors can increase costs, decrease revenues and lead to additional charges to earnings, which may have a material adverse effect on our business, results of operations and financial condition.  Fresh berries and vegetables are also vulnerable to crop disease and to pests, which may vary in severity and effect, depending on the stage of production at the time of infection or infestation, the type of treatment applied and climatic conditions.  Moreover, there can be no assurance that available technologies to control such infestations will continue to be effective.  These infestations can increase costs, decrease revenues and lead to additional charges to earnings, which may have a material adverse effect on our business, results of operations and financial condition.  Our competitors may be affected differently by such weather conditions and natural disasters depending on the location of their supplies or operations.

Unavailability of purchased berries and vegetables, at reasonable prices, could adversely affect operations.

Our manufacturing costs are subject to fluctuations in certain commodity prices.  Berries and vegetables are not readily available year-round, therefore, we use the IQF technique to freeze the berries and vegetables harvested for use during the year to meet processing demands.  In addition to freezing our own home-grown berries, we also purchase a substantial amount of berries from outside suppliers to meet customer demands.  We are dependent on our suppliers to provide us with adequate supply and on a timely basis.  The failure of certain suppliers to meet our performance specifications, quality standards or delivery schedules could have a material adverse effect on our operating results.  To the extent that certain types of berries or vegetables become scarce, substantially increase in price, or become unavailable or unavailable on commercially attractive terms, our operating results could be materially and adversely affected.

Risks Related to the Snack Product Segment

We may not be able to compete successfully in the highly competitive snack food industry.

The market for snack foods, such as those sold by us, is large and intensely competitive.  Competitive factors in the snack food industry include product quality and taste, brand awareness among consumers, access to supermarket shelf space, price, advertising and promotion, variety of snacks offered, nutritional content, product packaging and package design.  We compete in that market principally on the basis of product taste and quality.

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The snack food industry is dominated by large food companies, including Frito-Lay, Inc., a subsidiary of PepsiCo, Inc., The Kellogg Company, ConAgra Foods, Inc., Diamond Foods, Inc., General Mills, Inc., Snyder’s-Lance, Inc. and others which have substantially greater financial and other resources than us and sell brands that are more widely recognized than our products.  Numerous other companies that are actual or potential competitors of ours, many with greater financial and other resources (including more employees and more extensive facilities) than us, offer products similar to ours.  In addition, many of such competitors offer a wider range of products than that offered by us.  Local or regional markets often have significant smaller competitors, many of whom offer products similar to ours.  With expansion of our operations into new markets, we have and will continue to encounter significant competition from national, regional and local competitors that may be greater than that encountered by us in our existing markets.  In addition, such competitors may challenge our position in our existing markets.

A disruption in the performance of our suppliers could have an adverse effect on our operations.

Our manufacturing costs are subject to fluctuations in the prices of potatoes, potato flakes, potato starch, corn and oil, as well as other ingredients used in our products.  Potatoes, potato flakes, potato starch and corn are widely available year-round, and we use a variety of oils in the production of our products.  Nonetheless, we are dependent on our suppliers to provide us with products and ingredients in adequate supply and on a timely basis.  The failure of certain suppliers to meet our performance specifications, quality standards or delivery schedules could have a material adverse effect on our operating results.  Changing suppliers can require long lead times. The failure of our suppliers to meet our needs could occur for many reasons, including fires, natural disasters, weather, manufacturing problems, disease, crop failure, strikes, transportation interruption, government regulation, political instability and terrorism.  A failure of supply could also occur due to suppliers’ financial difficulties, including bankruptcy.  Any significant interruption to supply or cost increase could substantially harm our business and financial performance.  To the extent that product ingredients become scarce, substantially increase in price, or become unavailable or unavailable on commercially attractive terms, our operating results could be materially and adversely affected.  From time to time, we may lock in prices for raw materials, such as oils, as we deem appropriate, and such strategies may result in us paying prices for raw materials that are above market at the time of purchase.

We do not own the patents for the technology we use to manufacture certain T.G.I. Friday’s®, Boulder Canyon® and Tato Skins® brand products , as well as certain private label branded products.

We license technology from a third party in connection with the manufacture of certain T.G.I. Friday’s®, Boulder Canyon® and Tato Skins® brand products, as well as certain private label branded products, and have a royalty-bearing, exclusive right license to use the technology necessary to produce these products in the United States, Canada, and Mexico until such time as the parties mutually agree to terminate the agreement.  Even though the patents for this technology expired in December 2006, in consideration for the use of this technology, we are required to make royalty payments to the third party on sales of products manufactured utilizing the technology until such termination date.  Since these patents expired, we no longer have exclusive rights to this technology and, as a result, may face additional competition that could adversely affect our revenues.  Moreover, our competitors, certain of which may have significantly greater resources than us, may utilize different technology in the manufacture of products that are similar to those we currently manufacture, or that we may manufacture in the future.  The entry of any such products into the marketplace could have a material adverse effect on our sales of certain T.G.I. Friday’s®, Boulder Canyon® and Tato Skins® brand products, certain private label branded products, as well as any such future products.

We may not be able to adequately protect our intellectual property and other proprietary rights that are material to our business.

Our ability to compete effectively depends in part upon protection of our rights in trademarks, copyrights and other intellectual property rights we own or license. Our use of contractual provisions, confidentiality procedures and agreements, and trademark, copyright, unfair competition, trade secret and other laws to protect our intellectual property and other proprietary rights may not be adequate. Litigation may be necessary to enforce our intellectual property rights and protect our proprietary information, or to defend against claims by third parties that our services or our use of intellectual property infringe their intellectual property rights. Any litigation or claims brought by or against us could result in substantial costs and diversion of our resources. A successful claim of trademark, copyright or other intellectual property infringement against us could prevent us from providing services, which could harm our business, financial condition or results of operations. In addition, a breakdown in our internal policies and procedures may lead to an unintentional disclosure of our proprietary, confidential or material non-public information, which could in turn harm our business, financial condition or results of operations.

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Risks Related to Our Securities

The market price of our Common Stock has been volatile and may continue to be volatile and the value of your investment may decline.

The market price of our Common Stock has experienced a high level of volatility and may continue to be volatile.  During fiscal 2013, the market price of our Common Stock (based on last reported sale price of the Common Stock on the Nasdaq Global Market) ranged from a high of $13.53 per share to a low of $6.49 per share.  The last reported sales price of the Common Stock on the Nasdaq Global Market on December 28, 2013 was $13.47 per share.

A significant amount of our Common Stock is controlled by a small number of stockholders, and the interests of such stockholders may conflict with those of other stockholders.

As of December 28, 2013, Larry Polhill, beneficially owned 21.2% of our outstanding shares.  As a result, Mr. Polhill may be able to exercise significant influence over the Company and certain matters requiring approval of its stockholders, including the approval of significant corporate transactions, such as a merger or other sale of the Company or its assets.  This could limit the ability of other stockholders of the Company to influence corporate matters and may have the effect of delaying or preventing a third party from acquiring control of the Company.  Apart from transfer restrictions arising under applicable provisions of the securities laws, there are no restrictions on the ability of Mr. Polhill to transfer any or all of his beneficial ownership at any time.  One or more of such transfers could have the effect of transferring effective control of the Company, including to one or more parties not currently known to us.

Our Certificate of Incorporation authorizes us to issue preferred stock, and the rights of holders of Common Stock may be adversely affected by the rights of holders of any such preferred stock .

Our Certificate of Incorporation authorizes the issuance of up to 50,000 shares of “blank check” preferred stock with such designations, rights and preferences as may be determined from time to time by our Board of Directors.  We may issue such shares of preferred stock in the future without stockholder approval.  The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future.  The issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of discouraging, delaying or preventing a change of control of the Company, and preventing holders of Common Stock from realizing a premium on their shares.

Section 203 of the Delaware General Corporation Law may have an anti-takeover effect .

Under Section 203 of the Delaware General Corporation Law (the “DGCL”), we are prohibited from engaging in any “business combination” (as defined in the DGCL) with any “interested stockholder” (as defined in the DGCL) unless certain conditions are met.  This statutory provision could also have an anti-takeover effect.

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We are responsible for all insurance costs, utilities and real estate taxes in connection with our facilities.  We believe that our facilities are adequately covered by insurance.  We also believe that our properties generally are in good operating condition and are suitable for our current purposes.

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Dividends

We have never declared or paid any dividends on the shares of our Common Stock.  Management intends to retain any future earnings for the operation and expansion of our business and does not anticipate paying any dividends at any time in the foreseeable future.  Additionally, certain debt agreements of ours limit our ability to declare and pay dividends.

Sales of Unregistered Securities

We did not make any sales of unregistered securities during 2013.

(a)          Shares of restricted stock withheld, at the election of a certain holder of restricted stock, by the Company from the vested portion of a restricted stock award with a market value approximating the amount of the withholding taxes due from such restricted stockholder.

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Stock Price Performance Graph

Set forth below is a graph comparing the percentage change in the cumulative total stockholder return on our Common Stock with the cumulative total return of the Russell 2000 Index (Market Index) and the S&P Packaged Foods Index (Peer Index) for the period starting December 27, 2009 and ending December 28, 2013.  The graph assumes that $100 was invested on December 27, 2009 in our Common Stock and in each of the two indices, and that, as to such indices, dividends were reinvested.  We have not, since our inception, paid any cash dividends on our Common Stock.  Historical stock price performance shown on the graph is not necessarily indicative of future price performance.

See Note 9 to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for a summary of treasury stock repurchases and retirements.

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INVENTURE FOODS, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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Gross Profit .  Gross profit for 2013 was $38.9 million, compared to $36.9 million for the prior year, with gross margin decreasing 190 basis points to 18.0% for the year ended December 28, 2013, compared to 19.9% for the year ended December 29, 2012.  Our gross profit and gross profit as a percentage of net sales by operating segment were as follows (in thousands):

The frozen products segment gross profit was $22.7 million, an increase of $5.2 million, or 29.9%, compared to gross profit of $17.5 million for the prior fiscal year, and increased as a percentage of net revenues to 19.4% in 2013 from 19.3% in 2012.  The increase in gross profit for the year is primarily attributable to increased production capability with our acquisition of Willamette Valley Fruit Company.

The snack products segment gross profit was $16.1 million, a decrease of $3.2 million, or 16.7%, compared to gross profit of $19.4 million for the prior fiscal year, and decreased as a percentage of net revenues to 16.4% in 2013 from 20.5% in 2012.  The decrease in gross profit for the year is largely due to a decrease in sales of certain licensed products, partially offset by an increase in co-packing production.

Selling, General and Administrative Expenses.  Selling, general and administrative (“SG&A”) expenses increased 9.7%, or $2.5 million, for the year ended December 28, 2013, compared to the prior fiscal year.  SG&A expense decreased 80 basis points to 13.0% as a percentage of net sales for the year ended December 28, 2013, compared to 13.8% in the prior fiscal year.  The increase in SG&A expense dollars was primarily attributable to transaction and integration related costs of approximately $1.4 million associated with the Willamette Valley Fruit Company and Fresh Frozen Foods acquisitions that occurred during 2013, as well as increased commissions on higher sales.

Interest Expense.  Net interest expense for the year ended December 28, 2013 increased 14.1%, to $0.9 million, compared to $0.8 million during the year ended December 29, 2012.  The increase was due to increased debt balances related to the two acquisitions that occurred during 2013.

Income Tax Provision.  The income tax provision of $3.4 million for 2013 is $0.8 million less than the $4.2 million of tax provision in the prior year.  Our effective income tax expense rate was 33.7% in 2013, compared to 36.2% in 2012.  The change in the effective tax rate is primarily due to a decrease in the state effective tax rate.

2012 Compared to 2011

Net Revenues .  In 2012, net revenues increased 14.1%, or $22.9 million, to $185.2 million, compared with net revenues of $162.2 million for the previous fiscal year.  Excluding the extra reporting week, consolidated net revenues increased by 17.2% over the same period last year.  Our net revenues by operating segment were as follows:

The frozen products segment net revenues were $90.8 million, an increase of $23.6 million, or 35.2%, compared with net revenues of $67.2 million for the previous fiscal year.  Excluding Jamba ® , frozen segment net revenues improved by $23.9 million or 45.0%, compared to prior year.  This increase was a result of strong volume growth in both our branded and private label business.  Jamba® net revenues totaled $13.8 million, a decrease of $0.2 million, as a result of the additional week in 2011.

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The snack products segment net revenues were $94.4 million, a decrease of $0.7 million, or 0.7%, compared with net revenues of $95.1 for the previous fiscal year.  The snack products segment net revenue was impacted by the sale of our DSD business in the fourth quarter.  Our distributed products were down 31.7% for the year, which was primarily due to the sale of our DSD business in the fourth quarter of 2012.  Our Boulder Canyon® products were down slightly by 1.6%, primarily due to the extra week in the prior year.  These decreases were partially offset by improved sales volumes of our private label business, which increased 15.8%, and T.G.I. Friday’s®, which increased 1.9%, compared to the prior year.

Gross Profit .  Gross profit for 2012 was $36.9 million, compared to $30.1 million for the prior year, with gross margin increasing 130 basis points to 19.9% for the year ended December 29, 2012, compared to 18.6% for the year ended December 31, 2011.  Our gross profit and gross profit as a percentage of net sales by operating segment were as follows:

The frozen products segment gross profit was $17.5 million, an increase of $5.5 million, or 46.3%, compared to gross profit of $12.0 million for the prior fiscal year, and increased as a percentage of net revenues to 19.3% in 2012 from 17.8% in 2011.  The increase in gross profit for the year is primarily attributable to favorable berry costs and overall plant efficiencies on higher volume.

The snack products segment gross profit was $19.4 million, an increase of $1.2 million, or 6.7%, compared to gross profit of $18.2 million for the prior fiscal year, and increased as a percentage of net revenues to 20.5% in 2012 from 19.1% in 2011.  The increase for the year is primarily the result of operational efficiencies, favorable material costs and the sale of our lower margin DSD business.

Selling, General and Administrative Expenses.  SG&A expenses increased 2.5%, or $0.6 million, for the year ended December 29, 2012, compared to the prior fiscal year.  SG&A expense decreased 160 basis points to 13.8% as a percentage of net sales for the year ended December 29, 2012, compared to the prior fiscal year.  The increase in SG&A expense dollars was primarily attributable to increased compensation costs as a result of achieving certain financial goals, as well as increased professional service costs.  These increases were partially offset by reduced overall Jamba sampling expenses compared to our national product launch in 2011.

Interest Expense.  Net interest expense for the year ended December 29, 2012 declined 13.7%, to $0.8 million, compared to $0.9 million during the year ended December 31, 2011.  The decrease was due primarily to lower average borrowing rates year to year and the pay-off of the mortgage on our Goodyear, Arizona facility, which was our highest interest rate debt.

Gain on Sale of DSD Business.  On November 5, 2012, we sold our DSD business for $1.2 million in cash, which primarily covered a network of independently operated and owned service routes and limited fixed assets associated with the DSD business.  We received an additional $0.3 million for inventory on-hand.  We recognized a net gain of $1.1 million in continuing operations as we will continue to indirectly sell our products through this network at a reduced cost and will no longer sell distributed products.  In 2012, sales of distributed products were $2.6 million.  Our DSD business was part of our snack products segment and included a limited number of snack products purchased and sold through our DSD network in Arizona.

Income Tax Provision.  The income tax provision of $4.2 million for 2012 is $2.7 million more than the $1.5 million of tax provision in the prior year.  Our effective income tax expense rate was 36.2% in 2012, compared to 34.9% in 2011.  The change in the effective tax rate is primarily due to a decrease in the tax rate benefit of lower state taxes and lower nondeductible expenses and other items.

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The following table sets forth for the periods presented certain consolidated cash flow information for the years ended December 28, 2013, December 29, 2012 and December 31, 2011 (in thousands):

Cash and Cash Flow

Our primary uses of cash during 2013 were to fund the acquisitions of Willamette Valley Fruit Company and Fresh Frozen Foods, which were primarily funded through our new $60.0 million Credit Agreement with U.S. Bank.

Operating Cash Flows

Cash flows from operating activities reflect our net earnings, adjusted for non-cash items such as, depreciation, amortization, stock-based compensation expense, write-offs and write-downs of assets, as well as changes in accounts receivable, inventories, accounts payable and accrued liabilities, and other assets and liabilities.

Net cash provided by operating activities was $5.3 million for the fiscal year ended December 28, 2013 and $11.2 million for the fiscal year ended December 29, 2012.  The overall decrease of $5.9 million in net cash provided by operating activities was primarily driven by an increase in inventory, largely related to increased inventory requirements related to Willamette Valley Fruit Company since its acquisition as well as an increase in inventory related to our co-packing business and a related increase in payables and accrued liabilities.

Net cash provided by operating activities was $11.2 million for the fiscal year ended December 29, 2012 and $4.7 million for the fiscal year ended December 31, 2011.  The overall increase of $6.5 million was primarily driven by an increase in cash from operations and working capital requirements.  In 2012, our inventories decreased $4.2 million during the year as a result of increased sales volume, reduced overall berry prices and a lower yield from our 2012 berry harvest.  Additionally, we incurred increases in accounts receivable of $1.8 million in 2012, compared to an increase of $4.2 million in 2011, attributable to our net revenue growth.  The $14.0 million year-over-year inventory decrease is the primary driver of the $14.0 million year-over-year decrease in accounts payable and accrued liabilities during 2012.

Net cash provided by operating activities was $4.7 million for the fiscal year ended December 31, 2011 and $7.1 million for the fiscal year ended December 25, 2010.  The overall decrease of $2.4 million was primarily driven by an increase in our working capital requirements of $2.3 million.  In 2011, our inventories increased $9.9 million during the year as a result of higher berry prices, increased sales volume, and anticipated demand.  We purchased higher quantities of lower cost fresh berries to freeze in order to reduce purchases of higher cost frozen berries.  Additionally, we incurred increases in accounts receivable of $4.2 million in 2011, compared to an increase of $0.8 million in 2010, attributable to our net revenue growth.  The $9.9 million year-over-year inventory increase is the primary driver of the $10.3 million year-over-year increase in accounts payable and accrued liabilities during 2011.  In 2010, we increased inventories by $4.4 million and accounts payable and accrued liabilities by $2.1 million, both primarily as a result of higher berry prices relative to prior year.  In 2010, accounts receivable also increased $0.8 million as a result of the increase in sales, compared to the prior year.

Investing Cash Flows

Net cash used in investing activities was $57.0 million in 2013, compared to $4.1 million in 2012.  Our 2013 investing activities included the acquisition of Willamette Valley Fruit Company and Fresh Frozen Foods for $8.5 million and $38.8 million, respectively, as well as $9.8 million in capital expenditures.  Capital expenditures of $9.8 million in 2013 relate to the purchase of manufacturing equipment of $7.9 million, primarily for new packaging equipment and new extrusion equipment at our Bluffton, Indiana facility, $0.9 million of capital expenditures related to the purchase and preproduction costs of berry plants, and $1.0 million in other expenditures relating to software, building improvements and office equipment.  Capital expenditures of $5.6 million in 2012 primarily relate to the purchase of manufacturing equipment of $3.8

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million, primarily for cooling equipment to efficiently and effectively cool fruit directly from the fields after harvesting and new packaging equipment at our Lynden, Washington facility, $0.6 million of capital expenditures related to the purchase and preproduction costs of berry plants, and $1.2 million in other expenditures relating to software, building improvements and office equipment.  Capital expenditures of $9.7 million in 2011 primarily relate to the purchase of manufacturing equipment of $6.4 million, primarily at our Goodyear, Arizona facility for new kettles and packaging equipment, $0.9 million of capital expenditures related to the purchase and preproduction costs of berry plants, $1.5 million of building improvements, and $0.9 million in furniture and office equipment.  In 2014, we plan to spend $12.4 million in capital expenditures, primarily at our manufacturing facilities.  Capital expenditures are funded primarily 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 fiscal year 2013 was $52.2 million, compared to cash used by financing activities of $7.4 million in 2012.  The $59.5 million increase in year-over-year net cash provided by financing activities is driven by the new financing relating to our acquisitions in 2013.

Net cash used by financing activities for fiscal year 2012 was $7.4 million, compared to cash provided by financing activities of $4.7 million in 2011.  The $12.1 million decrease in year-over-year net cash provided by financing activities is driven by paying down $11.2 million more on our revolving line of credit and $1.5 million more in payments made on long term debt, which includes the payoff of our mortgage on our Goodyear, Arizona facility, offset by a net $0.6 million increase in cash used in financing activities related to equity compensation.  Our decrease in borrowings was funded with cash provided by operating activities and proceeds from the sale of our DSD business.

Net cash provided by financing activities for fiscal year 2011 was $4.7 million, compared to $0.8 million in 2010.  The $3.9 million increase in net cash provided by financing activities is driven by additional borrowings of $6.9 million on our revolving line of credit year-over-year, partially offset by the $2.8 million year-over-year decrease in proceeds from capital lease financing relating to the prior year’s extrusion equipment implementation in our Bluffton, Indiana facility, and further offset by an increase of $0.3 million in capital lease obligation payments.  The increase of borrowings on our credit facility is driven by our planned capital expenditure initiatives in our Goodyear, Arizona facility, our planned buildup of inventories relating to the national Jamba® Smoothies launch, and increased accounts receivables generated by higher net revenues.

Debt and Capital Resources

Based on the maximum permitted leverage ratio as of December 28, 2013, the Company’s debt balance that could have been outstanding under our line of credit was reduced from the maximum borrowing capacity of $30.0 million to $8.4 million, of which $3.2 million was outstanding at December 28, 2013.  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 Credit Agreement), subject, in certain instances, to the expiration of any applicable cure period.  The Credit Agreement requires us to maintain compliance with certain financial covenants, including a minimum fixed charge coverage ratio and a leverage ratio.  At December 28, 2013, we were in compliance with all of the financial covenants.

See Note 7 to our Consolidated Financial Statements “Long-Term Debt and Line of Credit” in Part II, Item 8 of this Annual Report on Form 10-K.

Outlook

We believe that our current financing arrangement with U.S. Bank will provide adequate ability to finance our working capital needs and future capital expenditures.  We anticipate 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, discussed in detail in “Item 1. Business,” 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

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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 borrowing facilities, will enable us to meet our operating cash requirements for the next twelve months.  The 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.  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, we may require future debt or equity financings to meet our business requirements.  Any required financings may not be available or, if available, may not be on terms attractive to us.

Off-Balance Sheet Arrangements

Under SEC regulations, in certain circumstances, we are required to make certain disclosures regarding the following off-balance sheet arrangements, if material:

·                   Any obligation under certain guarantee contracts;

·                   Any retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets;

·                   Any obligation under certain derivative instruments; and

·                   Any obligation arising out of a material variable interest held by us in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or engages in leasing, hedging or research and development services with us.

We do not have any off-balance sheet arrangements that are required to be disclosed pursuant to these regulations, other than those described in the Notes to our Consolidated Financial Statements contained herein.  We do not have, nor do we engage in, transactions with any special purpose entities.  Other than an interest rate swap, we are not engaged in any derivative activities and had no forward exchange contracts outstanding at December 28, 2013.  In the ordinary course of business, we enter into operating lease commitments, purchase commitments and other contractual obligations.  These transactions are recognized in our financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”), and are more fully discussed below.

(a)          Reflects amounts outstanding under our Credit Agreement as of December 28, 2013.  During the year ended December 28, 2013 we entered into the $60.0 million Credit Agreement with a syndicate of lenders led by U.S. Bank, the terms of which are noted in Note 7 to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.

(b)          Amounts represent the expected cash payments of our capital leases, including the expected cash payments of interest expense of approximately $0.3 million on our capital leases.  See further discussion of our capital lease obligations as of December 28, 2013 in Note 7 to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.

(c)           Reflects amounts outstanding under our operating lease obligations as of December 28, 2013.  During the year ended December 28, 2013, we entered into a number of new lease commitments as part of our acquisitions of Willamette Valley Fruit Company effective May 28, 2013 and Fresh Frozen Foods effective November 8, 2013.

(d)          In order to mitigate the risks of volatility in commodity markets to which we are exposed, we have entered into 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.

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Critical Accounting Policies and Estimates

The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of our financial condition and results and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.  We believe that the following accounting policies fit this definition:

Allowance for Doubtful Accounts.   We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments.  If our financial condition were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.  We record specific allowances for receivable balances that are considered at higher risk due to known facts regarding the customer.

Inventories.   Our inventories are stated at the lower of cost (first-in, first-out) or market.  We identify slow moving or obsolete inventories and estimate appropriate loss provisions related thereto.  If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

Goodwill and Trademarks.  Goodwill and trademarks are reviewed for impairment annually, 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 reduce the fair value of a reporting unit below its carrying value.  We have concluded from our annual impairment testing performed in December that neither of our two reporting units were at risk of failing the impairment test in the near term, and we believe that there are no known risks for that conclusion to change at either of our reporting units.  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.

We believe that each of our remaining trademarks has the continued ability to generate cash flows indefinitely, and therefore each of our trademarks has been determined to have an indefinite life.  Our determination that these trademarks have indefinite lives includes an evaluation of historical cash flows and projected cash flows for each of these trademarks.  We continue to make investments to market and promote each of these brands, and management continues to believe that the market opportunities and brand extension opportunities will generate cash flows for an indefinite period of time.  In addition, there are no legal, regulatory, contractual, economic or other factors to limit the useful life of these trademarks, and we intend to renew each of these trademarks, which can be accomplished at little cost.

Revenue Recognition.   In accordance with GAAP, we recognize operating revenues upon shipment of products to customers provided title and risk of loss pass to our customers.  In those instances where title and risk of loss does not pass until delivery, revenue recognition is deferred until delivery has occurred.  In our snack products segment, revenue for products sold through our local distribution network is recognized when the product is received by the retailer.  Costs associated with obtaining shelf space (i.e., “slotting fees”) are accounted for as a reduction of revenue in the period in which we incur such costs.  Anytime we offer consideration (cash or credit) as a trade advertising or promotional allowance to a purchaser of products at any point along the distribution chain, the amount is accrued and recorded as a reduction in revenue.

Provisions and allowances for sales returns, promotional allowances, coupon redemption and discounts are also recorded as a reduction of revenues in our consolidated financial statements.  These allowances are estimated based on a percentage of sales returns using historical and current market information.  We record certain reductions to revenue for promotional allowances.  There are several different types of promotional allowances such as off-invoice allowances, rebates and shelf space allowances.  An off-invoice allowance is a reduction of the sales price that is directly deducted from the invoice amount.  We record the amount of the deduction as a reduction to revenue when the transaction occurs.  We record certain allowances for coupon redemptions, scan-back promotions and other promotional activities as a reduction to revenue.  The accrued liabilities for these allowances are monitored throughout the time period covered by the coupon or promotion.

Marketing Costs.   These costs include various sponsorships, coupon administration and consumer advertising programs that we enter into throughout the year, and are expensed as incurred.  We participate in a coupon programs, such as Sunday Free Standing Inserts (FSIs), digital marketing, coupon programs and social media, including Facebook, Twitter and Google advertising.  We use a national public relationship firm to promote all of our brands throughout the year targeting newspapers, magazines, web sites, bloggers, television and radio stations.  Our marketing programs also include selective event sponsorship designed to increase brand awareness and to provide opportunities to mass sample branded products.

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Also included in selling, general and administrative expense are costs and fees relating to the execution of in-store product demonstrations with club stores or grocery retailers.  The cost of product used in the demonstrations, which is insignificant, and the fee we pay to the independent third party providers who conduct the in-store demonstrations, are recorded as expense when the event occurs.  Product demonstrations are conducted by independent third party providers designated by the various retailer or club chains.  During the in-store demonstrations, the consumers in the stores receive small samples of our products, and consumers are not required to purchase our product in order to receive the sample.

Income Taxes.   We estimate valuation allowances on deferred tax assets for the portions that we do not believe will be fully utilized based on projected earnings and usage.  Our effective tax rate is based on the level of income of our separate legal entities.  Significant judgment is required in evaluating tax positions that affect the annual tax rate.  Unrecognized tax benefits for uncertain tax positions are established when, despite the fact that the tax return positions are supportable, we believe these positions may be challenged and the results are uncertain.  We adjust these liabilities in light of changing facts and circumstances.

Stock-Based Compensation.   We account for our stock options under the fair value method of accounting using a Black-Scholes valuation model to measure stock option fair values at the date of grant.  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 members of the Board of Directors.  In May 2008, our Board of Directors approved a ten-year term for all future stock option grants.  The stock option grants have vesting periods of five years and one year for employees and Board of Director members, respectively.

Self-Insurance Reserves.   We are partially self-insured for the purposes of providing health care benefits to employees covered by our insurance plan.  The plan covers all of full-time employees of the Company on the first day of the month after hiring date for salaried employees, and the first day of the month following the ninetieth day of service for hourly employees.  The plan covers the employee’s dependents, if elected by the employee.  We have contracted with an insurance carrier for stop loss coverage that commences when $100,000 in claims is paid annually for a covered participant.  In addition, we have contracted for aggregate stop loss insurance which provides coverage after the maximum amount paid by us exceeds approximately $1.5 million.  Estimated unpaid claims are included in accrued liabilities, and represent management’s best estimate of amounts that have not been paid prior to the year-end dates.  It is reasonably possible that the expense we will ultimately incur could differ.

The above listing is not intended to be a comprehensive list of all of our accounting policies.  In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP, with no need for management’s judgment in their application.  See our audited Consolidated Financial Statements and notes thereto included in this Annual Report on Form 10-K, which contain accounting policies and other disclosures required by GAAP.

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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 (loss).  While these interest rate swap agreements fixed a portion of the interest rate at a predictable level, we estimate pre-tax interest expense would have been approximately $0.2 million less without these swaps in the first fiscal year 2013.

The “Interest Rate Swaps” information contained in Note 7 to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K is incorporated by reference herein.

Foreign Currency Exchange Rate Risk

We contract for and settle all purchases in U.S. dollars.  We only purchase a modest amount of goods directly from international vendors.  Therefore, we consider the effect of foreign currency rate changes to be indirect and we do not hedge using any derivative instruments.  Historically, we have not been impacted by changes in exchange rates.

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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REPORT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Inventure Foods, Inc.

Phoenix, Arizona

We have audited the accompanying consolidated balance sheets of Inventure Foods, Inc. and subsidiaries (the “Company”) as of December 28, 2013 and December 29, 2012 and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 28, 2013. We also have audited the Company’s internal control over financial reporting as of December 28, 2013, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall consolidated financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Inventure Foods, Inc. and subsidiaries as of December 28, 2013 and December 29, 2012, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 28, 2013, in conformity with generally accepted accounting principles in the United States of America. Also in our opinion, Inventure Foods, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 28, 2013, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

/s/ Moss Adams LLP

Scottsdale, Arizona

March 13, 2014

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The accompanying notes are an integral part of these consolidated financial statements.

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The accompanying notes are an integral part of these consolidated financial statements.

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The accompanying notes are an integral part of these consolidated financial statements.

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