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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Inventure Foods, Inc. (MM) | NASDAQ:SNAK | NASDAQ | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 3.995 | 3.24 | 4.01 | 0 | 01:00:00 |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 28, 2015
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
Commission File Number: 001-14556
INVENTURE FOODS, INC.
(Exact name of registrant as specified in its charter)
Delaware |
|
86-0786101 |
(State or other jurisdiction of incorporation or |
|
(I.R.S. Employer |
organization) |
|
Identification No.) |
5415 East High Street, Suite #350 Phoenix, Arizona |
|
85054 |
(Address of principal executive offices) |
|
(Zip Code) |
Registrants telephone number, including area code: (623) 932-6200
Indicate by check whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
|
Yes x No o |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
|
Yes x No o |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o |
|
Accelerated filer x |
|
Non-accelerated filer o |
|
Smaller reporting company o |
|
|
|
|
(Do not check if a |
|
|
|
|
|
|
smaller reporting company) |
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
|
Yes o No x |
As of May 4, 2015, the total number of shares outstanding of the registrants common stock was 19,549,796 shares.
INVENTURE FOODS, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
Three Months Ended March 28, 2015
INVENTURE FOODS, INC. AND SUBSIDIARIES
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
Our disclosure and analysis in this Quarterly Report on Form 10-Q, including all documents incorporated by reference, includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), and the Private Securities Litigation Reform Act of 1995. From time to time, we also provide forward-looking statements in other materials we release to the public, as well as oral forward-looking statements. We have tried, wherever possible, to identify such statements by using words such as anticipate, believe, expect, intend, estimate, project, may, should, will, likely, will likely result, will continue, future, plan, target, forecast, goal, observe, seek, strategy and other words and terms of similar meaning. The forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events and financial performance.
Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to certain risks and uncertainties, including, without limitation, general economic conditions, increases in the cost or availability of ingredients, packaging, energy and employees, price competition and industry consolidation, ability to execute strategic initiatives, product recalls or safety concerns, disruptions of supply chain or information technology systems, customer acceptance of new products and changes in consumer preferences, food industry and regulatory factors, interest rate risks, dependence upon major customers, dependence upon existing and future license agreements, the possibility that we will need additional financing due to future operating losses or in order to implement the Companys business strategy, acquisition and divestiture-related risks, volatility of the market price of the Companys common stock, and those other risks and uncertainties discussed herein, that could cause actual results to differ materially from historical results or those anticipated. In light of these risks and uncertainties, there can be no assurance that the forward-looking information contained in this Quarterly Report on Form 10-Q will in fact transpire or prove to be accurate. Readers are cautioned to consider the specific risk factors described herein and in Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 27, 2014 and any subsequent Form 10-Q, and not to place undue reliance on the forward-looking statements contained herein, which speak only as of the date hereof.
The Company undertakes no obligation to update or publicly revise any forward-looking statement whether as a result of new information, future developments or otherwise. All subsequent written or oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by this paragraph. You are advised, however, to consult any further disclosures we make on related subjects in our Form 10-Q and Form 8-K reports and our other filings with the SEC. Also note that we provide a cautionary discussion of risks, uncertainties and possibly inaccurate assumptions relevant to our business under Risk Factors in the Annual Report on Form 10-K for the fiscal year ended December 27, 2014. 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.
PART I FINANCIAL INFORMATION
INVENTURE FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per-share data)
(unaudited)
|
|
March 28, |
|
December 27, |
| ||
|
|
2015 |
|
2014 |
| ||
ASSETS |
|
|
|
|
| ||
Current assets: |
|
|
|
|
| ||
Cash and cash equivalents |
|
$ |
920 |
|
$ |
495 |
|
Accounts receivable, net of allowance for doubtful accounts of $394 and $106 at March 28, 2015 and December 27, 2014, respectively |
|
26,128 |
|
22,420 |
| ||
Inventories |
|
56,724 |
|
65,216 |
| ||
Deferred income tax asset |
|
1,224 |
|
1,228 |
| ||
Other current assets |
|
12,671 |
|
1,220 |
| ||
Total current assets |
|
97,667 |
|
90,579 |
| ||
|
|
|
|
|
| ||
Property and equipment, net of accumulated depreciation of $41,859 and $40,179 at March 28, 2015 and December 27, 2014, respectively |
|
55,799 |
|
55,200 |
| ||
Goodwill |
|
23,286 |
|
23,286 |
| ||
Trademarks and other intangibles, net |
|
14,965 |
|
24,543 |
| ||
Other assets |
|
1,506 |
|
1,702 |
| ||
Total assets |
|
$ |
193,223 |
|
$ |
195,310 |
|
|
|
|
|
|
| ||
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
| ||
Accounts payable |
|
$ |
18,701 |
|
$ |
15,533 |
|
Accrued liabilities |
|
23,036 |
|
12,978 |
| ||
Current portion of long-term debt |
|
7,281 |
|
7,041 |
| ||
Total current liabilities |
|
49,018 |
|
35,552 |
| ||
|
|
|
|
|
| ||
Long-term debt, less current portion |
|
57,296 |
|
59,218 |
| ||
Line of credit |
|
20,077 |
|
18,802 |
| ||
Deferred income tax liability |
|
6,874 |
|
6,869 |
| ||
Interest rate swaps |
|
326 |
|
349 |
| ||
Other liabilities |
|
2,109 |
|
2,554 |
| ||
Total liabilities |
|
135,700 |
|
123,344 |
| ||
|
|
|
|
|
| ||
Commitments and contingencies (Notes 7 and 10) |
|
|
|
|
| ||
|
|
|
|
|
| ||
Stockholders equity: |
|
|
|
|
| ||
Common stock, $.01 par value; 50,000 shares authorized; 19,918 and 19,961 shares issued and outstanding at March 28, 2015 and December 27, 2014, respectively |
|
199 |
|
200 |
| ||
Additional paid-in capital |
|
33,278 |
|
33,100 |
| ||
Accumulated other comprehensive loss |
|
(119 |
) |
(134 |
) | ||
Retained earnings |
|
24,636 |
|
39,271 |
| ||
|
|
57,994 |
|
72,437 |
| ||
Less: treasury stock, at cost: 368 shares at March 28, 2015 and December 27, 2014 |
|
(471 |
) |
(471 |
) | ||
Total stockholders equity |
|
57,523 |
|
71,966 |
| ||
Total liabilities and stockholders equity |
|
$ |
193,223 |
|
$ |
195,310 |
|
See accompanying notes to condensed consolidated financial statements (unaudited).
INVENTURE FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per-share data)
(unaudited)
|
|
Quarters Ended |
| ||||
|
|
March 28, |
|
March 29, |
| ||
Net revenues |
|
$ |
77,607 |
|
$ |
67,509 |
|
Cost of revenues |
|
81,307 |
|
55,946 |
| ||
Gross profit |
|
(3,700 |
) |
11,563 |
| ||
Selling, general and administrative expenses |
|
9,152 |
|
8,398 |
| ||
Impairment of intangible asset |
|
9,277 |
|
|
| ||
Operating income (loss) |
|
(22,129 |
) |
3,165 |
| ||
Interest expense, net |
|
730 |
|
670 |
| ||
Income (loss) before income taxes |
|
(22,859 |
) |
2,495 |
| ||
Income tax benefit (expense) |
|
8,224 |
|
(898 |
) | ||
Net income (loss) |
|
$ |
(14,635 |
) |
$ |
1,597 |
|
|
|
|
|
|
| ||
Earnings (loss) per common share: |
|
|
|
|
| ||
Basic |
|
$ |
(0.75 |
) |
$ |
0.08 |
|
Diluted |
|
$ |
(0.75 |
) |
$ |
0.08 |
|
|
|
|
|
|
| ||
Weighted average number of common shares: |
|
|
|
|
| ||
Basic |
|
19,581 |
|
19,437 |
| ||
Diluted |
|
19,581 |
|
19,924 |
|
See accompanying notes to condensed consolidated financial statements (unaudited).
INVENTURE FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(unaudited)
|
|
Quarters Ended |
| ||||
|
|
March 28, |
|
March 29, |
| ||
Net income (loss) |
|
$ |
(14,635 |
) |
$ |
1,597 |
|
Change in fair value of interest rate swaps, net of tax |
|
15 |
|
28 |
| ||
Comprehensive income (loss) |
|
$ |
(14,620 |
) |
$ |
1,625 |
|
See accompanying notes to condensed consolidated financial statements (unaudited).
INVENTURE FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
|
Quarters Ended |
| ||||
|
|
March 28, |
|
March 29, |
| ||
|
|
|
|
|
| ||
Cash flows from operating activities: |
|
|
|
|
| ||
Net income (loss) |
|
$ |
(14,635 |
) |
$ |
1,597 |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
| ||
Depreciation |
|
1,701 |
|
1,616 |
| ||
Amortization |
|
301 |
|
301 |
| ||
Product recall |
|
15,493 |
|
|
| ||
Impairment of intangible asset |
|
9,277 |
|
|
| ||
Provision for (recovery of) bad debts |
|
55 |
|
(18 |
) | ||
Deferred income taxes |
|
(8,757 |
) |
227 |
| ||
Excess income tax benefit from exercise of stock options |
|
(131 |
) |
(214 |
) | ||
Share-based compensation expense |
|
357 |
|
222 |
| ||
Loss on disposition of equipment |
|
5 |
|
20 |
| ||
Change in operating assets and liabilities: |
|
|
|
|
| ||
Accounts receivable |
|
(3,995 |
) |
1,109 |
| ||
Inventories |
|
3,611 |
|
1,209 |
| ||
Other assets and liabilities |
|
(2,168 |
) |
(324 |
) | ||
Accounts payable and accrued liabilities |
|
1,755 |
|
999 |
| ||
Net cash provided by operating activities |
|
2,869 |
|
6,744 |
| ||
|
|
|
|
|
| ||
Cash flows from investing activities: |
|
|
|
|
| ||
Payment for property and equipment |
|
(1,935 |
) |
(5,430 |
) | ||
Payment of contingent consideration for Willamette Valley Fruit Company |
|
(230 |
) |
(450 |
) | ||
Payment of contingent consideration for Sin In A Tin |
|
(1 |
) |
|
| ||
Net cash used in investing activities |
|
(2,166 |
) |
(5,880 |
) | ||
|
|
|
|
|
| ||
Cash flows from financing activities: |
|
|
|
|
| ||
Net borrowings on line of credit |
|
1,274 |
|
397 |
| ||
Proceeds from issuance of common stock under equity award plans |
|
|
|
31 |
| ||
Payments made on capital lease obligations |
|
(126 |
) |
(123 |
) | ||
Payments made on long-term debt |
|
(1,557 |
) |
(1,408 |
) | ||
Excess income tax benefit from exercise of stock options |
|
131 |
|
214 |
| ||
Payment of payroll taxes on stock-based compensation through shares withheld |
|
|
|
(208 |
) | ||
Net cash used in financing activities |
|
(278 |
) |
(1,097 |
) | ||
Net increase (decrease) in cash and cash equivalents |
|
425 |
|
(233 |
) | ||
Cash and cash equivalents at beginning of period |
|
495 |
|
910 |
| ||
Cash and cash equivalents at end of period |
|
$ |
920 |
|
$ |
677 |
|
|
|
|
|
|
| ||
Supplemental disclosures of cash flow information: |
|
|
|
|
| ||
Cash paid during the period for interest |
|
$ |
(669 |
) |
$ |
(518 |
) |
Cash paid during the period for income taxes |
|
$ |
(1,373 |
) |
$ |
(855 |
) |
See accompanying notes to condensed consolidated financial statements (unaudited).
INVENTURE FOODS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Organization and Summary of Significant Accounting Policies
Inventure Foods, Inc., a Delaware corporation (referred to herein as the Company, Inventure Foods, we, our or us), is a leading marketer and manufacturer of healthy/natural and indulgent specialty snack food brands with more than $285 million in annual net revenues for fiscal year 2014.
We specialize in two primary product categories: (1) healthy/natural food products and (2) indulgent specialty snack products. We sell our products nationally through a number of channels including: grocery, natural, mass merchandisers, drug, club, value, vending, food service, convenience stores and international. Our goal is to have a diversified portfolio of brands, products, customers and distribution channels.
In our healthy/natural food category, products include Rader Farms® frozen berries, Boulder Canyon® brand kettle cooked potato chips and other snack and food items, Willamette Valley Fruit Company brand frozen berries, Fresh Frozen brand frozen vegetables, Jamba® branded blend-and-serve smoothie kits under license from Jamba Juice Company, Seattles Best Coffee® Frozen Coffee Blends branded blend-and-serve frozen coffee beverage under license from Seattles Best Coffee, LLC and private label frozen fruit and healthy/natural snacks. In our indulgent specialty snack food category, products include T.G.I. Fridays® brand snacks under license from T.G.I. Fridays Inc. (T.G.I. Fridays), Nathans Famous® brand snack products under license from Nathans Famous Corporation, Vidalia® brand snack products under license from Vidalia Brands, Inc., Poore Brothers® kettle cooked potato chips, Bobs Texas Style® kettle cooked chips, Tato Skins® brand potato snacks, and Sin In A Tin® chocolate pate and other frozen desserts. We also manufacture private label snacks for certain grocery retail chains and co-pack products for other snack and cereal manufacturers.
We operate in two segments: (1) frozen products and (2) snack products. The frozen products segment includes frozen fruits, vegetables and beverages for sale primarily to groceries, club stores and mass merchandisers. All products sold under our frozen products segment are considered part of the healthy/natural food category. The snack products segment includes potato chips, kettle chips, potato crisps, potato skins, pellet snacks, sheeted dough products, cereal and extruded products for sale primarily to snack food distributors and retailers. The products sold under our snack products segment includes products considered part of the indulgent specialty snack food category, as well as products considered part of the healthy/natural food category.
We operate manufacturing facilities in eight locations. Our frozen berry products are processed in Lynden, Washington, Salem, Oregon and Jefferson, Georgia. Our frozen berry business grows, processes and markets premium berry blends, raspberries, blueberries and rhubarb and purchases blackberries, cherries, cranberries, strawberries and other fruits from a select network of fruit growers for resale. The fruit is processed, frozen and packaged for sale and distribution to wholesale customers. Our frozen vegetable products are processed in Jefferson, Georgia, Thomasville, Georgia and Salem, Oregon. Our frozen beverage products are packaged at our Lynden, Washington and Jefferson, Georgia facilities. We also use third-party processors for certain frozen products and package certain frozen fruits for other manufacturers. The products of our newly acquired frozen desserts business are produced in Pensacola, Florida. Our snack products are manufactured at our Goodyear, Arizona and Bluffton, Indiana facilities, as well as some third-party plants for certain products.
On April 23, 2015, we announced a voluntary product recall of certain varieties of the Companys Fresh FrozenTM line of frozen vegetables, as well as select varieties of our Jamba® At Home line of smoothie kits because the Jefferson, Georgia facility tested positive for Listeria monocytogenes. For discussion of this product recall, refer to Note 10, Subsequent Event.
Our fiscal year ends on the last Saturday occurring in the month of December of each calendar year. Accordingly, the first quarter of 2015 commenced December 28, 2014 and ended March 28, 2015.
Basis of Presentation
The consolidated financial statements for the quarter ended March 28, 2015 are unaudited and include the accounts of Inventure Foods and all of our wholly owned subsidiaries. All significant intercompany amounts and transactions have been eliminated. The consolidated financial statements, including the December 27, 2014 consolidated balance sheet data which was derived from audited financial statements, have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all the information and footnotes required by accounting principles generally accepted in the United States of America (U.S. GAAP). In the opinion of management, the condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary in order to make the consolidated financial statements not misleading. A description of our accounting policies and other financial information is included in the audited financial statements filed with our Annual Report on Form 10-K for the fiscal year ended December 27, 2014. The results of operations for the quarter ended March 28, 2015 are not necessarily indicative of the results expected for the full year.
INVENTURE FOODS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the exit price) in an orderly transaction between market participants at the measurement date. We classify our investments based upon an established fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are described as follows:
Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 Quoted prices in markets that are not considered to be active or financial instruments without quoted market prices, but for which all significant inputs are observable, either directly or indirectly;
Level 3 Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
A financial instruments level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
At March 28, 2015 and December 27, 2014, the carrying value of cash, accounts receivable, accounts payable and accrued liabilities approximate fair values since they are short term in nature. The carrying value of the long-term debt approximates fair value based on the borrowing rates currently available to us for long-term borrowings with similar terms. The following table summarizes the valuation of our assets and liabilities measured at fair value on a recurring basis (in thousands) at the respective dates set forth below:
|
|
|
|
March 28, 2015 |
|
December 27, 2014 |
| ||||||||||||||
Balance Sheet Classification |
|
|
|
Interest Rate |
|
Non-qualified |
|
Earn-out |
|
Interest Rate |
|
Non-qualified |
|
Earn-out |
| ||||||
Other assets |
|
Level 1 |
|
$ |
|
|
$ |
505 |
|
$ |
|
|
$ |
|
|
$ |
697 |
|
$ |
|
|
Interest rate swaps |
|
Level 2 |
|
(326 |
) |
|
|
|
|
(349 |
) |
|
|
|
| ||||||
Accrued liabilities |
|
Level 3 |
|
|
|
|
|
(245 |
) |
|
|
|
|
(246 |
) | ||||||
Other liabilities |
|
Level 3 |
|
|
|
|
|
(1,372 |
) |
|
|
|
|
(1,602 |
) | ||||||
|
|
|
|
$ |
(326 |
) |
$ |
505 |
|
$ |
(1,617 |
) |
$ |
(349 |
) |
$ |
697 |
|
$ |
(1,848 |
) |
Considerable judgment is required in interpreting market data to develop the estimate of fair value of our derivative instruments. Accordingly, the estimate may not be indicative of the amounts that we could realize in a current market exchange. The use of different market assumptions or valuation methodologies could have a material effect on the estimated fair value amounts.
The Companys non-qualified deferred compensation plan assets consist of money market and mutual funds invested in domestic and international marketable securities that are directly observable in active markets.
The fair value measurement of the earn-out contingent consideration obligation relates to the acquisitions of Sin In A Tin in September 2014 and Willamette Valley Fruit Company in May 2013, and is included in accrued liabilities and other long-term liabilities in the consolidated balance sheets. The fair value measurement is based upon significant inputs not observable in the market. Changes in the value of the obligation are recorded as income or expense in our consolidated statements of income. To determine the fair value, we valued the contingent consideration liability based on the expected probability weighted earn-out payments corresponding to the performance thresholds agreed to under the applicable purchase agreements. The expected earn-out payments were then present valued by applying a discount rate that captures a market participants view of the risk associated with the expected earn-out payments.
INVENTURE FOODS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
A summary of the activity of the fair value of the measurements using unobservable inputs (Level 3 Liabilities) for the quarter ended March 28, 2015, is as follows (in thousands):
|
|
Level 3 |
| |
Balance at December 27, 2014 |
|
$ |
1,848 |
|
Earn-out compensation paid for Willamette Valley Fruit Company |
|
(230 |
) | |
Earn-out compensation paid for Sin In A Tin |
|
(1 |
) | |
Balance at March 28, 2015 |
|
$ |
1,617 |
|
Income Taxes
Income tax benefit was $8.2 million for the quarter ended March 28, 2015, compared to income tax expense of $0.9 million for the quarter ended March 29, 2014. Our effective tax rate for both the quarter ended March 28, 2015 and March 29, 2014 was 36.0%.
Earnings (Loss) Per Common Share
Basic earnings (loss) per common share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is calculated by including all dilutive common shares such as stock options and restricted stock. Unvested restricted stock grants that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and, therefore, requires earnings per share to be presented pursuant to the two-class method. However, the application of this method would have no effect on basic and diluted earnings per common share and is therefore not presented.
For the quarter ended March 28, 2015, diluted loss per share is the same as basic loss per share as the inclusion of potentially issuable common stock would be antidilutive. For the quarter ended March 29, 2014, no shares were excluded from the computation of diluted earnings per share since the exercise price of all outstanding options were less than the average market price of our common stock for that period. Exercises of outstanding stock options are assumed to occur for purposes of calculating diluted earnings per share for periods in which their effect would not be anti-dilutive.
Earnings per common share was computed as follows for the quarters ended March 28, 2015 and March 29, 2014 (in thousands, except per share data):
|
|
Quarters Ended |
| ||||
|
|
March 28, |
|
March 29, |
| ||
Basic Earnings (Loss) Per Share: |
|
|
|
|
| ||
Net income |
|
$ |
(14,635 |
) |
$ |
1,597 |
|
Weighted average number of common shares |
|
19,581 |
|
19,437 |
| ||
Earnings (loss) per common share |
|
$ |
(0.75 |
) |
$ |
0.08 |
|
|
|
|
|
|
| ||
Diluted Earnings (Loss) Per Share: |
|
|
|
|
| ||
Net income |
|
$ |
(14,635 |
) |
$ |
1,597 |
|
Weighted average number of common shares |
|
19,581 |
|
19,437 |
| ||
Incremental shares from assumed conversions of stock options |
|
|
|
487 |
| ||
Adjusted weighted average number of common shares |
|
19,581 |
|
19,924 |
| ||
Earnings (loss) per common share |
|
$ |
(0.75 |
) |
$ |
0.08 |
|
Stock-Based Compensation
Compensation expense for restricted stock and stock option awards is adjusted for estimated attainment thresholds and forfeitures and is recognized on a straight-line basis over the requisite period of the award, which is currently one to five years for restricted stock and one to five years for stock options. We estimate future forfeiture rates based on our historical experience.
Compensation costs related to all stock-based payment arrangements, including employee stock options, are recognized in the financial statements based on the fair value method of accounting. Excess tax benefits related to stock-based payment arrangements are classified as cash inflows from financing activities and cash outflows from operating activities. See Note 9, Stockholders Equity for additional information.
INVENTURE FOODS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Recent Accounting Pronouncements
Changes to U.S. GAAP are established by the Financial Accounting Standards Board (FASB) in the form of accounting standards updates (ASU) to the FASBs Accounting Standards Codification.
We consider the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position or results of operations.
In April 2014, the FASB issued amendments to guidance for reporting discontinued operations and disposals of components of an entity. The amended guidance requires that a disposal representing a strategic shift that has (or will have) a major effect on an entitys financial results or a business activity classified as held for sale should be reported as discontinued operations. The amendments also expand the disclosure requirements for discontinued operations and add new disclosures for individually significant dispositions that do not qualify as discontinued operations. The amendments are effective prospectively for fiscal years, and interim reporting periods within those years, beginning after December 15, 2014 (early adoption is permitted only for disposals that have not been previously reported). The implementation of the amended guidance is not expected to have a material impact on our consolidated financial position or results of operations.
In May 2014, the FASB issued new accounting guidance related to revenue recognition. This new standard will replace all current U.S. GAAP guidance on this topic and eliminate all industry-specific guidance. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. This guidance will be effective at the beginning of our 2017 fiscal year and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. However, in April 2015, the FASB voted to propose a deferral of the effective date of the new revenue standard by one year, but to permit entities to adopt one year earlier if they choose (i.e., the original effective date). The proposed deferral would result in the new revenue standard being effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2017. Regardless of whether the one-year deferral is ultimately approved, we continue to evaluate the impact, if any, of adopting this new accounting standard on our financial statements.
In June 2014, the FASB issued new guidance related to stock compensation. This new standard requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already been rendered. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015 and can be applied either prospectively or retrospectively to all awards outstanding as of the beginning of the earliest annual period presented as an adjustment to opening retained earnings. Early adoption is permitted. We are evaluating the impact, if any, of adopting this new accounting guidance on our financial statements.
2. Acquisitions
Sin In A Tin
On September 29, 2014, we acquired the assets and intellectual property of a small boutique frozen desserts business, Sin In A Tin, for approximately $160,000 in cash. An additional amount of up to $0.5 million is payable to the seller in the form of an earn-out based on future net revenues from the Sin In A Tin products. At the time of acquisition, the contingent consideration was recorded at $0.2 million based on the fair value assessment. Additionally, we recorded $0.1 million of identifiable intangible assets and $0.1 million of net tangible assets that were assumed as a part of this acquisition based on their estimated fair values, and $0.2 million of residual goodwill.
The above allocation will remain preliminary until the Company has all of the information necessary to finalize the allocation of the purchase price, which shall be no later than one year following the acquisition date.
INVENTURE FOODS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
3. Inventories
Inventories consisted of the following as of March 28, 2015 and December 27, 2014 (in thousands):
|
|
March 28, |
|
December 27, |
| ||
|
|
2015 |
|
2014 |
| ||
Finished goods |
|
$ |
19,339 |
|
$ |
28,651 |
|
Raw materials |
|
37,385 |
|
36,565 |
| ||
|
|
$ |
56,724 |
|
$ |
65,216 |
|
4. Goodwill, Trademarks and Other Intangibles
Goodwill, trademarks and other intangibles, net, consisted of the following as of March 28, 2015 and December 27, 2014 (in thousands):
|
|
Estimated |
|
March 28, |
|
December 27, |
| ||
Goodwill: |
|
|
|
|
|
|
| ||
Inventure Foods |
|
|
|
$ |
5,986 |
|
$ |
5,986 |
|
Rader Farms |
|
|
|
5,630 |
|
5,630 |
| ||
Willamette Valley Fruit Company |
|
|
|
3,147 |
|
3,147 |
| ||
Fresh Frozen Foods |
|
|
|
8,301 |
|
8,301 |
| ||
Sin In A Tin |
|
|
|
222 |
|
222 |
| ||
Total Goodwill |
|
|
|
$ |
23,286 |
|
$ |
23,286 |
|
|
|
|
|
|
|
|
| ||
Trademarks: |
|
|
|
|
|
|
| ||
Inventure Foods |
|
|
|
$ |
896 |
|
$ |
896 |
|
Rader Farms |
|
|
|
1,070 |
|
1,070 |
| ||
Willamette Valley Fruit Company |
|
|
|
740 |
|
740 |
| ||
Fresh Frozen Foods |
|
|
|
9,475 |
|
9,475 |
| ||
Sin In A Tin |
|
|
|
123 |
|
123 |
| ||
|
|
|
|
|
|
|
| ||
Other intangibles: |
|
|
|
|
|
|
| ||
Rader Farms - Customer relationship, gross carrying amount |
|
10 years |
|
100 |
|
100 |
| ||
Rader Farms - Customer relationship, accum. amortization |
|
|
|
(79 |
) |
(76 |
) | ||
Willamette Valley Fruit Company - Customer relationship, gross carrying amount |
|
10 years |
|
3,200 |
|
3,200 |
| ||
Willamette Valley Fruit Company - Customer relationship, accum. amortization |
|
|
|
(560 |
) |
(480 |
) | ||
Fresh Frozen Foods - Customer relationship, gross carrying amount |
|
12 years |
|
|
|
10,487 |
| ||
Fresh Frozen Foods - Customer relationship, accum. amortization |
|
|
|
|
|
(992 |
) | ||
Total trademarks and other intangibles, net |
|
|
|
$ |
14,965 |
|
$ |
24,543 |
|
Our amortization expense related to these intangibles was $301,000 for the quarters ended March 28, 2015 and March 29, 2014. The trademarks are deemed to have an indefinite useful life because they are expected to generate cash flows indefinitely.
Goodwill and trademarks are reviewed for impairment annually in the fourth fiscal quarter, or more frequently if impairment indicators arise. As a result of the product recall (See Note 10, Subsequent Event), the Company reviewed the Fresh Frozen Foods goodwill and intangible assets for impairment as of March 28, 2015. Our analysis included a review of the forecasted future cash flows of the Fresh Frozen business, including the estimated cash outflows directly related to the product recall. Based on our review, we concluded that the intangible asset related to the acquired customer relationships of Fresh Frozen Foods was fully impaired. Accordingly, the Company recorded an intangible asset impairment charge of $9.3 million, which represents the unamortized balance as of March 28, 2015. We believe the carrying values of our remaining goodwill and intangible assets are appropriate as of March 28, 2015.
INVENTURE FOODS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
5. Accrued Liabilities
Accrued liabilities consisted of the following as of March 28, 2015 and December 27, 2014 (in thousands):
|
|
March 28, |
|
December 27, |
| ||
Accrued payroll and payroll taxes |
|
$ |
2,285 |
|
$ |
2,365 |
|
Accrued royalties and commissions |
|
1,226 |
|
1,048 |
| ||
Accrued advertising and promotion |
|
1,097 |
|
351 |
| ||
Accrued berry purchase payments |
|
|
|
4,127 |
| ||
Accrued product recall warranty (see Note 10) |
|
10,379 |
|
|
| ||
Accrued other |
|
8,049 |
|
5,087 |
| ||
|
|
$ |
23,036 |
|
$ |
12,978 |
|
6. Long-Term Debt
Long-term debt consisted of the following as of March 28, 2015 and December 27, 2014 (in thousands):
|
|
March 28, |
|
December 27, |
| ||
Senior secured term loan due quarterly through November 2018 |
|
$ |
53,625 |
|
$ |
54,900 |
|
Equipment term loan B due monthly through September 2020 |
|
1,227 |
|
1,278 |
| ||
Equipment term loan, Rader Farms, due monthly through August 2019 |
|
2,346 |
|
2,428 |
| ||
Equipment term loan, Willamette Valley Fruit Company, due monthly through August 2019 |
|
1,741 |
|
1,802 |
| ||
Bluffton, IN mortgage loan due monthly through December 2016 |
|
1,801 |
|
1,825 |
| ||
Lynden, WA real estate term loan due monthly through July 2017 |
|
2,501 |
|
2,565 |
| ||
Capital lease obligations, primarily due September 2017 |
|
1,336 |
|
1,461 |
| ||
|
|
64,577 |
|
66,259 |
| ||
Less current portion of long-term debt |
|
(7,281 |
) |
(7,041 |
) | ||
Long-term debt, less current portion |
|
$ |
57,296 |
|
$ |
59,218 |
|
In August 2014, we entered into two separate equipment term loans with Banc of America Leasing & Capital LLC; one for $2.6 million to finance equipment to be used at the Companys Rader Farms facility, and the other for $1.9 million to finance equipment to be used at Willamette Valley Fruit Company. Both of these equipment term loans accrue interest at a rate of 2.35% and will be repaid over 60 recurring monthly payments commencing September 15, 2014.
On November 8, 2013, we entered into a $60.0 million senior secured term loan and a new $30.0 million senior secured revolving line of credit with a syndicate of lenders led by U.S. Bank National Association (U.S. Bank), pursuant to a Credit Agreement, a Security Agreement and certain other customary ancillary agreements (the Senior Credit Facility). To facilitate the Senior Credit Facility, the Company and its wholly owned subsidiaries entered into a Letter Amendment Agreement, dated as of November 8, 2013, with U.S. Bank (the Letter Amendment). The Letter Amendment reconciled the terms of the Senior Credit Facility with the terms of the Loan and Security Agreement and that certain Loan Agreement (term loan), dated as of November 30, 2006, by and between the Companys wholly owned subsidiary, La Cometa Properties, Inc., and U.S. Bank.
The borrowing capacity available to us under the Senior Credit Facility consists of notes representing:
· A revolving line of credit up to $30.0 million, maturing on November 8, 2018. At March 28, 2015, $20.1 million was outstanding and $9.9 million was available under the line of credit. All borrowings under the revolving line of credit bear interest at either (i) the prime rate of interest announced by U.S. Bank from time to time or (ii) LIBOR, plus the LIBOR Rate Margin (as defined in the revolving credit facility note) as adjusted.
· An equipment term loan B due September 2020 with interest at 3.12%. On August 14, 2013, we entered into an equipment term loan B to finance equipment located at Willamette Valley Fruit Company.
INVENTURE FOODS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The Senior Credit Facility maintained the terms and borrowing capacity of the prior agreement with respect to the following:
· Bluffton, Indiana mortgage loan due December 2016; interest rate at 30 day LIBOR plus 165 basis points, fixed through a swap agreement to 6.85%; collateralized by land and a building in Bluffton, Indiana.
· Lynden, Washington real estate term loan due July 2017; interest at LIBOR plus 165 basis points; fixed through a swap agreement to 4.28%; secured by a leasehold interest in the real property in Lynden, Washington.
As is customary in such financings, U.S. Bank, on behalf of the syndicate of lenders, may terminate the syndicates commitments, accelerate the repayment of amounts outstanding and exercise other remedies upon the occurrence of an event of default (as defined in the Senior Credit Facility), subject, in certain instances, to the expiration of an applicable cure period. The Senior Credit Facility requires us to maintain compliance with certain financial covenants, including a minimum fixed charge coverage ratio and a leverage ratio. At March 28, 2015, we were in compliance with all of the financial covenants.
Interest Rate Swaps
To manage exposure to changing interest rates, we selectively enter into interest rate swap agreements. Our interest rate swaps qualify for and are designated as cash flow hedges. Changes in the fair value of a swap that is highly effective and that is designated and qualifies as a cash flow hedge to the extent that the hedge is effective, are recorded in other comprehensive income.
We entered into an interest rate swap in 2006 to convert the interest rate of the mortgage to purchase the Bluffton, Indiana facility from the contractual rate of 30 day LIBOR plus 165 basis points to a fixed rate of 6.85%. The swap has a fixed pay-rate of 6.85% and a notional value of approximately $1.8 million at each of March 28, 2015 and December 27, 2014, and expires in December 2016. We evaluate the effectiveness of the hedge on a quarterly basis and, at March 28, 2015, the hedge is highly effective. The interest rate swap had a fair value of approximately $141,000 and $155,000 at March 28, 2015 and December 27, 2014, respectively, which were recorded as a liability on the accompanying consolidated balance sheets. The swap value was determined in accordance with the fair value measurement guidance discussed earlier using Level 2 observable inputs and approximates the loss that would have been realized if the contract had been settled at the end of the fiscal period.
We entered into another interest rate swap in January 2008 to effectively convert the interest rate on the real estate term loan to a fixed rate of 4.28%. The interest rate swap is structured with decreasing notional values to match the expected pay down of the debt. The notional value of the swap was $2.5 million and $2.6 million at March 28, 2015 and December 27, 2014, respectively. The interest rate swap is accounted for as a cash flow hedge derivative and expires in July 2017. The interest rate swap had fair value of approximately $185,000 and $194,000 at March 28, 2015 and December 27, 2014, respectively, which were recorded as a liability on the accompanying consolidated balance sheets. This value was determined in accordance with the fair value measurement guidance discussed earlier using Level 2 observable inputs and approximates the loss that would have been realized if the contract had been settled at the end of the fiscal period.
7. Commitments and Contingencies
Contractual
Our future contractual obligations consist principally of long-term debt, operating leases, minimum commitments regarding third-party warehouse operations services, forward purchase agreements and remaining minimum royalty payments due licensors pursuant to brand licensing agreements.
In order to mitigate the risks of volatility in commodity markets to which we are exposed, we have entered into forward purchase agreements with certain suppliers based on market prices, forward price projections and expected usage levels. Our purchase commitments for certain ingredients, packaging materials and energy are generally less than 12 months.
Legal Proceedings
We are periodically a party to various lawsuits arising in the ordinary course of business. Management believes, based on discussions with legal counsel, that the resolution of any such lawsuits, individually and in the aggregate, will not have a material adverse effect on our financial position or results of operations.
INVENTURE FOODS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Under our license agreement with the Jamba Juice Company (Jamba Juice), we are obligated and have agreed to indemnify and defend Jamba Juice in the two matters identified below, and Jamba Juice has tendered defense of these matters to us.
On June 28, 2013, a class action complaint against Jamba Juice and the Company, captioned Lilly v. Jamba Juice Company et al (the Lilly Matter), was filed in the Federal Court for the Northern District of California. The plaintiff purports to represent a class of individuals who purchased make-at-home smoothie kits from Jamba Juice, and alleges that such smoothie kits contain unnaturally processed, synthetic and/or non-natural ingredients and that use of the words all natural on the labels of these smoothie kits is unfair and fraudulent and violates various false advertising and unfair competition laws. The plaintiff also alleges that the smoothie kits contain two additional allegedly non-natural ingredients. While we currently believe the all natural statement on the smoothie kits are not misleading and in full compliance with U.S. Food and Drug Administration guidelines, we are investigating the claims asserted in the Lilly Matter, and intend to vigorously defend against them. On September 17, 2013, we filed a motion to dismiss, seeking to dismiss plaintiffs claims as to gelatin and the Orange Dream Machine smoothie kit. Our motion was denied in November 2013. On February 3, 2014, the plaintiffs filed a motion to certify a class of all persons in California who bought certain Jamba Juice smoothie kits. On September 18, 2014, the court issued an order granting class certification solely for purposes of determining liability and denying certification for purposes of damages. The court requested further briefing on the question of whether it has jurisdiction to certify a class for purposes of granting injunctive relief. Following mediation, the basic terms of a proposed class settlement were reached. The parties signed a definitive agreement that was filed with the court for approval on December 1, 2014. The courts ruling on a motion for preliminary approval is pending and will be followed by a subsequent final approval hearing. If approved by the court, a settlement class will be certified for injunctive relief only, requiring the Company to (i) remove the all natural designation on the labels of the challenged products and (ii) pay $5,000 to each of the two individual plaintiffs and up to $425,000 to plaintiffs counsel for fees and costs. The case would also be dismissed and the Company would pay no damages to class members, although there would be no release by class members of any individual damage claims they might have related to the Lilly Matter.
On February 26, 2015, the Company received a demand letter from counsel in California purporting to represent plaintiff, Maria Ghermezian and other California consumers. The letter alleges that the Companys use of the words all natural to describe certain kettle cooked potato chips is misleading and deceptive to consumers and violates the California Consumer Legal Remedies Act. The demand letter seeks changes to the Companys advertising of the products, a recall of the products, and restitution. Numerous all natural lawsuits have been brought against various food manufacturers and distributors in California over the past several years, including the Company. While we currently believe the all natural claims on certain of our potato chip packages are not misleading, we are investigating the claims asserted in the letter, and intend to vigorously defend against them.
8. Business Segments
Our operations consist of two reportable segments: (1) frozen products and (2) snack products. The frozen products segment produces frozen fruits, vegetables and beverages for sale primarily to groceries, club stores and mass merchandisers. The snack products segment produces potato chips, kettle chips, potato crisps, potato skins, pellet snacks, sheeted dough products, cereal and extruded products for sale primarily to snack food distributors and retailers. Our reportable segments offer different products and services. The majority of our revenues are attributable to external customers in the United States. We also sell to external customers internationally; however, the revenues attributable to such customers are immaterial. All of our assets are located in the United States.
We do not allocate assets, selling, general and administrative expenses, income taxes or other income and expense to our reportable segments. The following tables present information about our reportable segments for the quarters ended March 28, 2015 and March 29, 2014 (in thousands):
|
|
Frozen |
|
Snack |
|
Consolidated |
| |||
Quarter ended March 28, 2015 |
|
|
|
|
|
|
| |||
Net revenues from external customers |
|
$ |
51,349 |
|
$ |
26,258 |
|
$ |
77,607 |
|
Depreciation and amortization included in segment gross profit |
|
556 |
|
606 |
|
1,162 |
| |||
Segment gross profit |
|
(7,489 |
) |
3,789 |
|
(3,700 |
) | |||
|
|
|
|
|
|
|
| |||
Quarter ended March 29, 2014 |
|
|
|
|
|
|
| |||
Net revenues from external customers |
|
$ |
43,655 |
|
$ |
23,854 |
|
$ |
67,509 |
|
Depreciation and amortization included in segment gross profit |
|
475 |
|
577 |
|
1,052 |
| |||
Segment gross profit |
|
7,844 |
|
3,719 |
|
11,563 |
|
INVENTURE FOODS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The following table reconciles reportable segment gross profit to our consolidated income (loss) before income taxes for the quarters ended March 28, 2015 and March 29, 2014 (in thousands):
|
|
Quarter Ended |
| ||||
|
|
March 28, |
|
March 29, |
| ||
Segment gross profit |
|
$ |
(3,700 |
) |
$ |
11,563 |
|
Unallocated amounts: |
|
|
|
|
| ||
Operating expenses |
|
18,429 |
|
8,398 |
| ||
Interest expense, net |
|
730 |
|
670 |
| ||
Income (loss) before income taxes |
|
$ |
(22,859 |
) |
$ |
2,495 |
|
9. Stockholders Equity
The Companys Amended and Restated 2005 Equity Incentive Plan (the 2005 Plan) was approved at our 2005 Annual Meeting of Stockholders and initially reserved for issuance of 410,518 shares of our common stock, which was the number of reserved but unissued shares available for issuance under the Companys 1995 Stock Option Plan, as amended. The number of shares of our common stock reserved for issuance has been increased since 2005 to a total of 2,710,518 as of the date of this filing, pursuant to subsequent amendments to the 2005 Plan approved by our stockholders. If any shares of our common stock subject to awards granted under the 2005 Plan are canceled, those shares will be available for future awards under the 2005 Plan. The 2005 Plan expires in May 2015 and the new 2015 Equity Incentive Plan is expected to be approved by our shareholders in May 2015 at the Companys annual meeting. Awards granted under the 2005 Plan may include: nonqualified stock options, incentive stock options, restricted stock, restricted stock units, stock appreciation rights, performance units and stock-reference awards.
Restricted Common Stock
We have issued shares of restricted common stock in the form of restricted stock awards and restricted stock units as incentives to certain employees, officers and members of our board of directors (the Board). Restricted stock awards and restricted stock units granted to members of the Board are granted with a one-year service period. Restricted stock awards and restricted stock units granted to the Companys officers vest over three years and typically contain performance restrictions that are required to be achieved over a three-year measurement period in order for the shares to be released. The number of performance-based restricted stock ultimately released varies based on whether we achieve certain financial results. Restricted stock units granted to non-officer employees generally vest over three or five years. We record compensation expense each period based on the market price of our common stock at the time of grant and, for performance-based restricted stock awards and units, our estimate of the most probable number of shares that will ultimately be released. The related stock-based compensation expense is included in selling, general and administrative expenses. Additionally, the compensation expense is adjusted for our estimate of forfeitures. Recipients of restricted common stock are entitled to receive any dividends declared on our common stock and have voting rights, regardless of whether such shares have vested.
During the three months ended March 28, 2015 and March 29, 2014, the total stock-based compensation expense from restricted common stock recognized in the financial statements was $0.2 million and $0.1 million, respectively. There were no stock-based compensation costs capitalized.
The following table summarizes activities related to restricted stock awards for the three months ended March 28, 2015:
|
|
Number |
|
Weighted |
| |
Nonvested balance at December 27, 2014 |
|
208,600 |
|
$ |
7.52 |
|
Granted |
|
|
|
|
| |
Vested and released, including shares withheld to cover taxes |
|
(90,376 |
) |
6.55 |
| |
Forfeited |
|
(21,724 |
) |
6.55 |
| |
Nonvested balance at March 28, 2015 |
|
96,500 |
|
$ |
8.65 |
|
INVENTURE FOODS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
As of March 28, 2015, the total unrecognized costs related to non-vested restricted stock awards was $0.4 million, which is expected to be recognized over a weighted average period of 1.12 years. This expected compensation expense does not reflect any new awards, or modifications to existing awards, that could occur in the future.
The following table summarizes activities related to restricted stock units for the three months ended March 28, 2015:
|
|
Number |
|
Weighted |
| |
Nonvested balance at December 27, 2014 |
|
144,929 |
|
$ |
13.21 |
|
Granted |
|
|
|
|
| |
Vested and released |
|
|
|
|
| |
Forfeited |
|
|
|
|
| |
Nonvested balance at March 28, 2015 |
|
144,929 |
|
$ |
13.21 |
|
As of March 28, 2015, the total unrecognized costs related to non-vested restricted stock units was $1.2 million, which is expected to be recognized over a weighted average period of 2.25 years. This expected compensation expense does not reflect any new awards, or modifications to existing awards, that could occur in the future.
Stock Options
Stock-based compensation expense from stock options recognized in the financial statements totaled $0.1 million for the three months ended March 28, 2015 and March 29, 2014, which reduced income from operations accordingly. There were no stock-based compensation costs capitalized.
The following table summarizes stock option activity during the three months ended March 28, 2015:
|
|
Options |
|
Weighted |
|
Aggregate |
|
Weighted Average |
| ||
Outstanding at December 27, 2014 |
|
732,852 |
|
$ |
5.27 |
|
|
|
|
| |
Granted |
|
|
|
$ |
|
|
|
|
|
| |
Exercised |
|
(13,000 |
) |
$ |
3.70 |
|
|
|
|
| |
Forfeited or expired |
|
|
|
$ |
|
|
|
|
|
| |
Outstanding at March 28, 2015 |
|
719,852 |
|
$ |
5.30 |
|
$ |
4,229,251 |
|
6.30 |
|
As of March 28, 2015, the total unrecognized costs related to non-vested stock options granted were $0.8 million. We expect to recognize such costs in the financial statements over a weighted average period of 2.2 years. This expected compensation expense does not reflect any new awards, or modifications to existing awards, that could occur in the future.
The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on our closing stock price of $11.05 as of March 28, 2015, which would have been received by the option holders had all option holders exercised options and sold the underlying shares on that date. The intrinsic value related to vested stock options outstanding was $2.8 million as of March 28, 2015 based on the exercise price and our closing stock price of $11.05 as of March 28, 2015.
INVENTURE FOODS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The following table summarizes information about stock options outstanding and exercisable at March 28, 2015:
Range of |
|
Options |
|
Weighted |
|
Weighted |
|
Options |
|
Weighted |
| ||
$1.70 - $3.20 |
|
182,200 |
|
3.7 |
|
$ |
1.91 |
|
179,600 |
|
$ |
1.90 |
|
$3.44 - $4.28 |
|
182,000 |
|
5.8 |
|
$ |
3.91 |
|
100,000 |
|
$ |
3.89 |
|
$6.55 - $7.21 |
|
301,500 |
|
7.7 |
|
$ |
6.92 |
|
92,200 |
|
$ |
6.87 |
|
$7.61 - $13.21 |
|
54,152 |
|
9.1 |
|
$ |
12.33 |
|
3,500 |
|
$ |
9.09 |
|
|
|
719,852 |
|
6.3 |
|
$ |
5.30 |
|
375,300 |
|
$ |
3.72 |
|
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 service period, generally five years for employees and one year for members of the Board. In May 2008, our Board approved a 10-year term for all future stock option grants, with service periods of five years for employees and one year for members of the Board. We issue new shares upon the exercise of stock options, as opposed to reissuing treasury shares.
10. Subsequent Event
On April 23, 2015, we announced a voluntary product recall of certain varieties of the Companys Fresh FrozenTM line of frozen vegetables, as well as select varieties of our Jamba® At Home line of smoothie kits because our Jefferson, Georgia facility tested positive for Listeria monocytogenes. The impacts recorded in our consolidated statement of operations attributable to the recall for the quarter ended March 28, 2015 are summarized as follows (in thousands):
|
|
Increase / |
| |
Net revenues |
|
$ |
|
|
Cost of revenues (1) |
|
15,260 |
| |
Gross profit |
|
(15,260 |
) | |
Operating expenses: |
|
|
| |
Selling, general & administrative expenses (2) |
|
233 |
| |
Impairment of intangible asset (3) |
|
9,277 |
| |
Operating loss |
|
(24,770 |
) | |
Interest expense, net |
|
|
| |
Loss before income taxes |
|
(24,770 |
) | |
Income tax benefit |
|
8,882 |
| |
Net loss |
|
$ |
(15,888 |
) |
(1) Additional cost of revenues primarily reflects the write-down of approximately $4.9 million of inventory on hand and a provision of approximately $10.4 million for additional costs estimated to be incurred related to the recall, including product expected to be returned from customers and consumers.
(2) Additional selling, general & administrative costs consists of approximately $0.2 million to record additional accounts receivable reserves.
(3) Amount reflects a $9.3 million impairment charge recorded to write-off the carrying value of the Fresh Frozen customer relationships intangible asset.
We expect there will be additional costs related to this recall recorded subsequent to the quarter ended March 28, 2015. To the extent that the Company is able to recover losses related to the recall through its insurance policies, such charges will be reversed in the period in which such recovery is determined to be probable, or in the period that the claim is resolved, depending upon the nature of the applicable loss; however, we can provide no assurance as to the likelihood, extent (if any) or timing of any such recovery. Additionally, while it is too soon to reliably estimate the impact of this recall on the Companys future sales of the Fresh FrozenTM brand and the Jamba® At Home line of smoothie kits, net revenues of the products affected by the recall are expected to be reduced for the second fiscal quarter of 2015 and potentially subsequent quarterly periods.
Additional details of the recall, including a listing of the specific products affected, are available on the Companys website at www.inventurefoods.com/information/frozenrecall.
INVENTURE FOODS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with the other sections of this Quarterly Report on Form Q, and our December 27, 2014 condensed consolidated financial statements and the accompanying notes thereto which are included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 10, 2015. The various sections of this MD&A contain a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described in the Risk Factors section of our Annual Report on Form 10-K for the fiscal year ended December 27, 2014. Accordingly, the Companys actual future results may differ materially from historical results or those currently anticipated.
Quarterly Overview
We are a leading marketer and manufacturer of healthy/natural and indulgent specialty snack food brands. Our products are marketed under a strong portfolio of brands, including T.G.I. Fridays®, Rader Farms®, Boulder Canyon®, Poore Brothers®, Willamette Valley Fruit CompanyTM, Fresh FrozenTM, Nathans Famous ®, Jamba®, Seattles Best Coffee®, Bobs Texas Style®, Vidalia®, Tato Skins® and Sin In A Tin®. T.G.I. Fridays®, Jamba®, Nathans Famous® and Vidalia® are licensed brand names. We complement our branded product retail sales with private label retail sales and co-packing arrangements.
This MD&A is intended to assist in the understanding of our condensed consolidated financial statements, the changes in certain key items in those condensed consolidated financial statements from period to period and the primary factors that contributed to those changes, as well as how certain critical accounting estimates affect our condensed consolidated financial statements.
Results of Operations
The following table sets forth for the periods presented certain financial data as a percentage of net sales for the three months ended March 28, 2015 and March 29, 2014:
|
|
Quarter Ended |
| ||
|
|
March 28, |
|
March 29, |
|
Net revenues |
|
100.0 |
% |
100.0 |
% |
Cost of revenues |
|
104.8 |
|
82.9 |
|
Gross profit |
|
(4.8 |
) |
17.1 |
|
Selling, general and administrative expenses |
|
11.8 |
|
12.4 |
|
Impairment of intangible asset |
|
12.0 |
|
|
|
Operating income (loss) |
|
(28.6 |
) |
4.7 |
|
Interest expense, net |
|
0.9 |
|
1.0 |
|
Income (loss) before income taxes |
|
(29.5 |
) |
3.7 |
|
Income tax benefit (expense) |
|
10.6 |
|
(1.3 |
) |
Net income (loss) |
|
(18.9 |
)% |
2.4 |
% |
Our operations consist of two reportable segments: (1) frozen products and (2) snack products. The frozen products segment includes frozen fruits, vegetables and beverages, for sale primarily to groceries, club stores and mass merchandisers. The snack products segment includes manufactured potato chips, kettle chips, potato crisps, potato skins, pellet snacks, sheeted dough products, cereal, and extruded products for sale primarily to snack food distributors and retailers.
Net Revenues. Consolidated net revenues were $77.6 million in the quarter ended March 28, 2015, an increase of $10.1 million, or 15.0%, compared to $67.5 million during the quarter ended March 29, 2014. Our net revenues by operating segment were as follows (in thousands):
|
|
Quarter Ended |
|
|
| ||||
|
|
March 28, |
|
March 29, |
|
% |
| ||
Frozen |
|
$ |
51,349 |
|
$ |
43,655 |
|
17.6 |
% |
Snack |
|
26,258 |
|
23,854 |
|
10.1 |
% | ||
Consolidated |
|
$ |
77,607 |
|
$ |
67,509 |
|
15.0 |
% |
Our frozen products segment net revenues were $51.3 million during the quarter ended March 28, 2015, an increase of $7.7 million, or 17.6%, compared to $43.7 million during the quarter ended March 29, 2014. This increase was primarily due to increased revenues in our frozen berry and frozen vegetable businesses, partially offset by approximately $1.5 million of additional slotting and tradespend costs incurred during the quarter ended March 28, 2015 to expand the Fresh Frozen brand. Net revenues from frozen berries increased 20.3% to $31.3 million in the first quarter of 2015, compared to $26.0 million in the first quarter of 2014. Net revenues from frozen vegetables increased 11.1% to $16.0 million in the first quarter of 2015, compared to $14.4 million in the first quarter of 2014.
Our snack products segment net revenues were $26.3 million for the quarter ended March 28, 2015, an increase of $2.4 million, or 10.1%, compared to $23.9 million for the quarter ended March 29, 2014. During the first quarter of 2015, sales of Boulder Canyon Authentic Foods® branded products increased 45.9% and sales of premium private label products increased 28.3%. These gains were partially offset by a decrease of 56.6% in net revenues from our co-packing agreements due to a temporary lag in production as we change to new packaging size.
Gross Profit. Gross profit was $(3.7) million for the quarter ended March 28, 2015, compared to $11.6 million for the quarter ended March 29, 2014. The product recall announced on April 23, 2015 negatively impacted gross profit for the quarter ended March 28, 2015 by $15.3 million as a result of inventory and warranty reserves recorded representing the estimated costs of the recall. Excluding the effects of the recall, gross profit was $11.6 million for the quarter ended March 28, 2015, which was flat compared to the quarter ended March 29, 2014, with gross margin as a percentage of net revenues decreasing 220 basis points to 14.9% for the quarter ended March 28, 2015 compared to 17.1% for the quarter ended March 29, 2014.
See Non-GAAP Data and Reconciliations below for information on the calculation of gross profit exclusive of recall costs.
Our gross profit and gross profit as a percentage of net sales by operating segment were as follows (in thousands):
|
|
Quarter Ended |
| ||||||||
|
|
March 28, |
|
% of Net |
|
March 29, |
|
% of Net |
| ||
Frozen |
|
$ |
(7,489 |
) |
(14.6 |
)% |
$ |
7,844 |
|
18.0 |
% |
Snack |
|
3,789 |
|
14.4 |
% |
3,719 |
|
15.6 |
% | ||
Consolidated |
|
$ |
(3,700 |
) |
(4.8 |
)% |
$ |
11,563 |
|
17.1 |
% |
Our frozen products segment gross profit was $(7.5) million for the quarter ended March 28, 2015, compared to $7.8 million for the quarter ended March 29, 2014. Excluding the effects of the recall, our frozen products segment gross profit was $7.8 million for the quarter ended March 28, 2015, a decrease of $0.1 million, or 0.9%, compared to the quarter ended March 29, 2014. Excluding the effects of the recall, as a percentage of net revenues, gross margin for the frozen products segment decreased 290 basis points to 15.1% from 18.0% for the quarter ended March 29, 2014. This decrease in gross margin for the frozen products segment was primarily due to slotting and tradespend investments incurred for our Fresh Frozen Foods brand and increased freight costs.
Our snack products segment gross profit was $3.8 million for the quarter ended March 28, 2015, an increase of $0.1 million, or 1.9%, compared to the quarter ended March 29, 2014. As a percentage of net revenues gross, margin for the snack products segment decreased 120 basis points to 14.4% from 15.6% for the quarter ended March 29, 2014. This decrease in gross margin for the snack segment was primarily due to increased freight costs and product sales and channel mix.
Selling, General and Administrative Expenses. Selling, general and administrative (SG&A) expenses was $9.2 million for the quarter ended March 28, 2015, compared to $8.4 million during the quarter ended March 29, 2014. Excluding the effects of the recall, which includes $0.2 million in additional accounts receivable reserves, SG&A expenses was $8.9 million for the quarter ended March 28, 2015, an increase of $0.5 million, or 6.2%, compared to $8.4 million during the quarter ended March 29, 2014. Excluding of the effects of the recall, as a percentage of net revenues, SG&A expenses decreased 90 basis points to 11.5% in the quarter ended March 28, 2015, compared to 12.4% during the quarter ended March 29, 2014. The increase in SG&A expenses was primarily driven by approximately $1.1 million of higher sales and marketing costs, partially offset by reduced incentive compensation costs recorded during the quarter ended March 28, 2015.
See Non-GAAP Data and Reconciliations below for information on the calculation of selling, general and administrative expenses exclusive of recall costs.
Impairment of Intangible Asset. The $9.3 million impairment charge recorded in the quarter ended March 28, 2015 relates to the write-off of the carrying value of the Fresh Frozen customer relationships intangible asset. For a description of our intangible assets, see Note 4, Goodwill, Trademarks and Other Intangibles to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Interest Expense. Interest expense was $0.7 million for the quarter ended March 28, 2015, which was flat compared to the quarter ended March 29, 2014, increasing slightly as a result of increased borrowings under our revolving line of credit. For a description of our various financing facilities, see Note 6, Long-Term Debt to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Income Tax Benefit (Expense). Income tax benefit was $8.2 million for the quarter ended March 28, 2015, compared to income tax expense of $0.9 million for the quarter ended March 29, 2014. Our effective tax rate for both the quarter ended March 28, 2015 and March 29, 2014 was 36.0%.
Liquidity and Capital Resources
Liquidity represents our ability to generate sufficient cash flows from operating activities to satisfy obligations, as well as our ability to obtain appropriate financing. Therefore, liquidity cannot be considered separately from capital resources that consist primarily of current and potentially available funds for use in achieving our objectives. Currently, our liquidity needs arise primarily from working capital requirements, capital expenditures and debt repayment. Net working capital was $48.6 million (a current ratio of 2.0:1) and $55.0 million (a current ratio of 2.5:1) at March 28, 2015 and December 27, 2014, respectively.
Operating Cash Flows
Cash flows from operating activities reflect our net earnings (loss), adjusted for non-cash items such as, depreciation, amortization, unpaid product recall related charges, 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 $2.9 million for the three months ended March 28, 2015 and $6.7 million for the three months ended March 29, 2014. The year-over-year decrease was primarily a result of the increased receivables as a result of sales growth and corresponding decrease in inventory. Increased payables are driven by the need for purchased frozen fruits to supplement our requirements as we pack the remaining harvested and local frozen fruit from the 2014 season.
Investing Cash Flows
Net cash used in investing activities was $2.2 million for the quarter ended March 28, 2015, compared to $5.9 million for the quarter ended March 29, 2014. Payments of contingent consideration related to the acquisition of Willamette Valley Fruit Company totaled $0.2 million during the quarter ended March 28, 2015, compared with $0.5 million during the prior year period. Capital expenditures of $1.9 million in the first three months of fiscal 2015 primarily relate to the purchase of manufacturing and packaging equipment at our Goodyear, Arizona facility, as well $0.2 in capitalized software costs associated with an ERP system upgrade. Capital expenditures of $5.4 million in the 2014 period related to the purchase of $4.7 million of manufacturing equipment, primarily related to new packaging and extrusion equipment at our Bluffton, Indiana facility, as well new freezing tunnels at our Lynden Washington, and Salem, Oregon facilities. We also incurred approximately $0.4 million in planting costs at our Lynden, Washington facility. During fiscal year 2015, we plan to make approximately $12.9 million in capital expenditures, primarily at our manufacturing facilities. Capital expenditures are funded by net cash flow from operating activities, cash on hand, and available credit from our credit facility.
Financing Cash Flows
Net cash used in financing activities for the quarter ended March 28, 2015 was $0.3 million compared to $1.1 million in the quarter ended March 29, 2014. This year-over-year decrease in cash used in financing activities is primarily due to increased net borrowings on our line of credit.
Debt and Capital Resources
At March 28, 2015, there was $0.9 million in cash and $20.1 million borrowed on our revolving line of credit. At that date, $9.9 million of additional borrowings were available under the revolving line of credit. As is customary in such financings, U.S. Bank may terminate its commitments and accelerate the repayment of amounts outstanding and exercise other remedies upon the occurrence of an event of default (as defined in the Loan Agreement), subject, in certain instances, to the expiration of an applicable cure period. Certain events may trigger an acceleration of repayment of the amounts outstanding under the Loan Agreement as defined in the agreement. The agreement requires us to maintain compliance with certain financial covenants, including a minimum fixed charge coverage ratio and a leverage ratio.
See Note 6, Long-Term Debt of our condensed consolidated financial statements in Item 1 of this Quarterly Report on Form 10-Q for detail regarding our financing arrangements.
Outlook
The financial impact of the Companys recently announced precautionary recall of certain varieties of its Fresh Frozen line of frozen vegetables and select varieties of its Jamba At Home line of smoothie kits is expected to have a negative impact on the Companys short-term liquidity. See the discussion under Note 10, Subsequent Event of our condensed consolidated financial statements in Item 1 of this Quarterly Report on Form 10-Q for a detailed discussion regarding the financial impact of the recall.
In order to address any potential liquidity needs, the Company is actively engaged in discussions with U.S. Bank, on behalf of the syndicate of lenders under its Senior Credit Facility, to provide the Company with access to additional liquidity above its current availability (which the Company has full access to) to meet the Companys short-term capital requirements. The Company has engaged a leading financial advisor to assist the Company in exploring longer term solutions to its capital requirements, as well as assist the Company in its negotiations with U.S. Bank. No assurance can be given that the Companys discussions with U.S. Bank will be successful. If such discussions are not successful, the Company will seek capital from other sources. If the Company is unable to timely secure alternative sources of financing, this result would have a material adverse effect on our business, financial condition and results of operations.
Our anticipated capital expenditures for 2015 are projected to be $6-8 million, which represents a decrease from $12.9 million disclosed in our prior filings, funded through working capital and various purchase or leasing arrangements. Our plans are not expected to materially affect our financial ratios or liquidity. In connection with the implementation of our business strategy, we may incur operating losses in the future and may require future debt or equity financings (particularly in connection with future strategic acquisitions, new brand introductions or capital expenditures). Expenditures relating to acquisition-related integration costs, market and territory expansion and new product development and introduction may adversely affect promotional and operating expenses and consequently may adversely affect operating and net income. These types of expenditures are expensed for accounting purposes as incurred, while revenue generated from the result of such expansion or new products may benefit future periods. We believe that cash flow from operations, together with additional borrowings under expected new financing arrangements, will enable us to meet our operating cash requirements for the next twelve months. As noted above, there can be no assurance that the Company will be successful in securing additional sources of financing. Our operating cash flow assumptions are 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 been 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, adverse weather conditions affecting our Rader Farms crop yield, or additional product recalls 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.
Interest Rate Swaps
See Note 6, Long-Term Debt to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for detail regarding our interest rate swaps.
Contractual Obligations
Other than the change in our facility lease commitments reflected below, there have been no material changes in our reported contractual obligations, as described under Contractual Obligations in Managements Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 27, 2014.
In January 2015, we entered into a 63-month operating lease arrangement for approximately 67,000 square feet of warehouse space in Tolleson, Arizona. The facility will primarily support our snack products segment and will increase our capacity from that which is currently available at our Goodyear, Arizona facility. The lease agreement contains escalating base rent payment terms ranging from approximately $26,000 to $29,000 per month over the term of the lease.
Non-GAAP Data and Reconciliations
Under the headings Gross Profit and Selling, General and Administrative Expenses, we reported gross profit and selling, general and administrative expenses exclusive of product recall costs, respectively. Gross profit and selling, general and administrative expenses exclusive of product recall costs are non-GAAP measures and exclude the impacts of the product recall. We reported gross profit and selling, general and administrative expenses exclusive of product recall costs because we believe they provide useful information regarding the Companys normal operating results and allow for better comparability with prior period operating results. Nevertheless, amounts reported for gross profit and selling, general and administrative expenses exclusive of product recall costs have certain limitations as analytical tools and should not be used as substitutes for gross profit and selling, general and administrative expenses prepared in accordance with GAAP.
A reconciliation of gross profit exclusive of recall costs to gross profit, the most directly comparable GAAP measure, is as follows (in thousands):
|
|
Quarter Ended |
| |
Gross profit excluding product recall costs |
|
$ |
11,560 |
|
Write-down of inventory on hand |
|
(4,881 |
) | |
Estimated other costs related to the product recall, including product expected to be returned |
|
(10,379 |
) | |
Gross profit |
|
$ |
(3,700 |
) |
A reconciliation of selling, general and administrative expenses exclusive of recall costs to selling, general and administrative expenses, the most directly comparable GAAP measure, is as follows (in thousands):
|
|
Quarter Ended |
| |
Selling, general and administrative expenses, excluding product recall costs |
|
$ |
8,919 |
|
Increase in accounts receivable reserves |
|
233 |
| |
Selling, general and administrative expenses |
|
$ |
9,152 |
|
Critical Accounting Policies and Estimates
There have been no significant changes to our critical accounting policies and estimates since the filing of our Annual Report on Form 10-K for the year ended December 27, 2014.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
There have been no material changes in our reported market risks, as described in Quantitative and Qualitative Disclosures About Market Risk in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 27, 2014.
Item 4. Controls and Procedures.
As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective for the purpose of providing reasonable assurance that the information required to be disclosed in the reports we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
During the fiscal quarter ended March 28, 2015, there were no changes to the Companys internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
For a discussion of legal proceedings, see Note 7, Commitments and Contingencies-Legal Proceedings to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
The following risk factor has been added to address our voluntary product recall and is a supplement to the risk factors previously disclosed in our Annual Report on Form 10-K for fiscal 2014 filed with the SEC on March 10, 2015.
Risks Related to Our Business and Industry
Our precautionary voluntary recall of certain varieties of our Fresh Frozen line of frozen vegetables, as well as select varieties of our Jamba At Home line of smoothie kits has affected our first quarter financial results and will continue to impact our financial results in future quarters.
On April 23, 2015, we initiated a precautionary voluntary recall of certain varieties of our Fresh Frozen line of frozen vegetables, as well as select varieties of our Jamba At Home line of smoothie kits. We have accounted for the voluntary recall primarily as additional cost of revenues to reflect the write-down of approximately $4.9 million of inventory on hand and a provision of approximately $10.4 million for additional costs estimated to be incurred related to the recall, including product expected to be returned from customers and consumers; and additional selling, general & administrative costs of approximately $0.2 million to record additional accounts receivable reserves. In addition, we have recorded a $9.3 million impairment charge to write-off the carrying value of the Fresh Frozen customer relationships intangible asset. Certain of these accounting charges are based on our best estimates and may be subject to change as we move forward in completing the voluntary recall. We will also incur additional costs in future quarters. While we expect to recover a portion of the charges for costs related to the voluntary recall in future quarters through our existing recall insurance, the amounts we believe we will recover will not cover all costs associated with the voluntary recall. We anticipate that sales of our Fresh Frozen line of frozen vegetables and select varieties of our Jamba At Home line of smoothie kits will be reduced in the second quarter ending June 27, 2015 and possibly future quarters, as compared to our original expectations for such product lines. Additionally, we may find it challenging to re-establish strong growth in product sales for these products for a period of time following the voluntary recall. Further, while there have been no illnesses or injuries reported to date, the occurrence of any illnesses or injuries could have serious consequences on our product sales and sales of our other products, our brand and reputation, any of which could harm our business.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The following table contains information for shares repurchased during the quarter ended March 28, 2015.
Fiscal period |
|
Total number of |
|
Average price |
|
Total number of |
|
Approximate dollar |
| ||
December 28, 2014 January 31, 2015 |
|
|
|
$ |
|
|
|
|
$ |
|
|
February 1, 2015 February 28, 2015 |
|
|
|
$ |
|
|
|
|
$ |
|
|
March 1, 2015 March 28, 2015 |
|
29,569 |
|
$ |
10.52 |
|
|
|
$ |
|
|
Total |
|
29,569 |
|
$ |
10.52 |
|
|
|
$ |
|
|
(1) 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.
31.1* |
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a). |
|
|
|
31.2 * |
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a). |
|
|
|
32** |
|
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
101.INS* |
|
XBRL Instance Document. |
|
|
|
101.SCH* |
|
XBRL Taxonomy Extension Scheme Document. |
|
|
|
101.CAL* |
|
XBRL Taxonomy Extension Calculation Linkbase Document. |
|
|
|
101.LAB* |
|
XBRL Taxonomy Extension Labels Linkbase Document. |
|
|
|
101.PRE* |
|
XBRL Taxonomy Extension Presentation Linkbase Document. |
|
|
|
101.DEF* |
|
XBRL Taxonomy Extension Definition Linkbase Document. |
* Filed herewith.
** Furnished herewith.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: |
May 7, 2015 |
|
INVENTURE FOODS, INC. | |
|
|
|
| |
|
|
| ||
|
By: |
/s/ Steve Weinberger | ||
|
|
Steve Weinberger | ||
|
|
Chief Financial Officer | ||
|
|
(Principal Financial Officer and Principal Accounting Officer) |
EXHIBIT 31.1
Certification of Principal Executive Officer
Pursuant to Exchange Act Rule 13a-14(a) and 15d-14(a)
as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Terry McDaniel, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Inventure Foods, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: May 7, 2015 |
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/s/ Terry McDaniel |
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Terry McDaniel |
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Chief Executive Officer |
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(Principal Executive Officer) |
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EXHIBIT 31.2
Certification of Principal Financial Officer
Pursuant to Exchange Act Rule 13a-14(a) and 15d-14(a)
as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Steve Weinberger, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Inventure Foods, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: May 7, 2015 |
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/s/ Steve Weinberger |
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Steve Weinberger |
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Chief Financial Officer |
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(Principal Financial Officer and Principal Accounting Officer) |
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EXHIBIT 32
Certification of Principal Executive Officer and Principal Financial Officer
Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned hereby certify, in his capacity as an officer of Inventure Foods, Inc. (the Company), that, to his knowledge:
1. The Quarterly Report on Form 10-Q for the period ended March 28, 2015 of the Company (the Report), fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: May 7, 2015 |
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|
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/s/ Terry McDaniel |
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Terry McDaniel |
|
Chief Executive Officer |
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(Principal Executive Officer) |
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|
|
|
|
/s/ Steve Weinberger |
|
Steve Weinberger |
|
Chief Financial Officer |
|
(Principal Financial Officer and Principal Accounting Officer) |
|
This certification accompanies this Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by Inventure Foods, Inc. for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), or otherwise subject to the liability of that Section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that Inventure Foods, Inc. specifically incorporates it by reference.
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Inventure Foods, Inc. and will be retained by Inventure Foods, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
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