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EX-32 - EX-32 - INVENTURE FOODS, INC.snak-20160625xex32.htm
EX-31.2 - EX-31.2 - INVENTURE FOODS, INC.snak-20160625ex31200ef0c.htm
EX-31.1 - EX-31.1 - INVENTURE FOODS, INC.snak-20160625ex311c183f3.htm
EX-3.1 - EX-3.1 - INVENTURE FOODS, INC.snak-20160625ex318e22a91.htm

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended June 25, 2016

 

or

 

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

 

For the transition period from                to               

 

Commission File Number: 001-14556

 

INVENTURE FOODS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

86-0786101

(State or other jurisdiction of incorporation or

(I.R.S. Employer

organization)

Identification No.)

 

 

5415 East High Street, Suite #350, Phoenix, Arizona

85054

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code:  (623) 932-6200

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes                No

 

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                No

 

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

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

(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                No

 

As of July 25, 2016, the total number of shares outstanding of the registrant’s Common Stock was 19,671,134 shares.

 

 

 

 


 

INVENTURE FOODS, INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

 

Table of Contents

 

Part I — FINANCIAL INFORMATION 

    

 

 

 

 

Item 1. Financial Statements. 

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets  – June 25, 2016 (Unaudited) and December 26, 2015

 

 

Condensed Consolidated Statements of Operations (Unaudited) - quarters and six months ended June 25, 2016 and June 27, 2015

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) – quarters and six months ended June 25, 2016 and June 27, 2015

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 25, 2016 and June 27, 2015

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

 

 

 

 

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

 

19 

 

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk 

 

25 

 

 

 

 

Item 4. Controls and Procedures 

 

25 

 

 

 

 

Part II — OTHER INFORMATION 

 

 

 

 

 

 

Item 1. Legal Proceedings 

 

26 

 

 

 

 

Item 1A. Risk Factors 

 

26 

 

 

 

 

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

 

26 

 

 

 

 

Item 6. Exhibits 

 

26 

 

 

 

Signatures 

 

27 

 

 


 

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, our 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 our business strategy, acquisition and divestiture-related risks, volatility of the market price of our common stock, par value $0.01 per share (“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 the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 26, 2015 and any subsequent Quarterly Report on Form 10-Q, and not to place undue reliance on the forward-looking statements contained herein, which speak only as of the date hereof.

 

We undertake 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 us or persons acting on our 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 Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and our other filings with the Securities and Exchange Commission (the “SEC”).  Also note that we provide a cautionary discussion of risks, uncertainties and possibly inaccurate assumptions relevant to our business in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 26, 2015.  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

 

Item 1.Financial Statements.

 

INVENTURE FOODS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

    

June 25,

    

December 26,

 

 

 

2016

 

2015

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,203

 

$

2,319

 

Accounts receivable, net of allowance for doubtful accounts of $125 and $94 at June 25, 2016 and December 26, 2015 respectively

 

 

22,681

 

 

19,928

 

Inventories

 

 

71,217

 

 

81,807

 

Deferred income tax asset

 

 

3,788

 

 

3,788

 

Other current assets

 

 

3,686

 

 

6,262

 

Total current assets

 

 

102,575

 

 

114,104

 

 

 

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation of $49,602 and $46,328 at June 25, 2016 and December 26, 2015 , respectively

 

 

66,675

 

 

59,963

 

Goodwill

 

 

23,286

 

 

23,286

 

Trademarks and other intangibles, net

 

 

14,553

 

 

14,718

 

Other assets

 

 

1,186

 

 

962

 

Total assets

 

$

208,275

 

$

213,033

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

32,341

 

$

35,983

 

Accrued liabilities

 

 

11,697

 

 

8,629

 

Current portion of long-term debt

 

 

2,407

 

 

1,826

 

Total current liabilities

 

 

46,445

 

 

46,438

 

 

 

 

 

 

 

 

 

Long-term debt, less current portion

 

 

82,803

 

 

83,300

 

Line of credit

 

 

22,690

 

 

25,951

 

Deferred income tax liability

 

 

2,560

 

 

2,560

 

Other liabilities

 

 

2,035

 

 

2,296

 

Total liabilities

 

 

156,533

 

 

160,545

 

 

 

 

 

 

 

 

 

Commitments and contingencies (see Note 7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Common stock, $.01 par value; 50,000 shares authorized; 20,039 and 19,979 shares issued and outstanding at June 25, 2016 and December 26, 2015, respectively

 

 

201

 

 

200

 

Additional paid-in capital

 

 

34,820

 

 

34,271

 

Retained earnings

 

 

17,192

 

 

18,488

 

 

 

 

52,213

 

 

52,959

 

Less: treasury stock, at cost: 368 shares at June 25, 2016 and December 26, 2015

 

 

(471)

 

 

(471)

 

Total stockholders’ equity

 

 

51,742

 

 

52,488

 

Total liabilities and stockholders’ equity

 

$

208,275

 

$

213,033

 

 

 

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

1


 

INVENTURE FOODS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Quarter Ended

    

Six Months Ended

 

 

 

June 25,

    

June 27,

 

June 25,

    

June 27,

 

 

 

2016

 

2015

 

2016

 

2015

 

Net revenues

 

$

69,263

 

$

66,422

 

$

139,118

 

$

144,029

 

Cost of revenues

 

 

58,996

 

 

58,397

 

 

120,034

 

 

139,704

 

Gross profit

 

 

10,267

 

 

8,025

 

 

19,084

 

 

4,325

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

8,493

 

 

10,217

 

 

16,602

 

 

19,369

 

Impairment of intangible asset

 

 

 —

 

 

 —

 

 

 —

 

 

9,277

 

Operating income (loss)

 

 

1,774

 

 

(2,192)

 

 

2,482

 

 

(24,321)

 

Non-operating (income) expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

2,320

 

 

928

 

 

4,676

 

 

1,658

 

Loss before income tax expense

 

 

(546)

 

 

(3,120)

 

 

(2,194)

 

 

(25,979)

 

Income tax benefit

 

 

268

 

 

1,169

 

 

898

 

 

9,393

 

Net loss

 

$

(278)

 

$

(1,951)

 

$

(1,296)

 

$

(16,586)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.01)

 

$

(0.10)

 

$

(0.07)

 

$

(0.85)

 

Diluted

 

$

(0.01)

 

$

(0.10)

 

$

(0.07)

 

$

(0.85)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

19,628

 

 

19,566

 

 

19,616

 

 

19,574

 

Diluted

 

 

19,628

 

 

19,566

 

 

19,616

 

 

19,574

 

 

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

 

2


 

INVENTURE FOODS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Quarter Ended

    

Six Months Ended

 

 

 

June 25,

    

June 27,

 

June 25,

    

June 27,

 

 

 

2016

 

2015

 

2016

 

2015

 

Net loss

 

$

(278)

 

$

(1,951)

 

$

(1,296)

 

$

(16,586)

 

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

 

 

 —

 

 

27

 

 

 —

 

 

42

 

Comprehensive loss

 

$

(278)

 

$

(1,924)

 

$

(1,296)

 

$

(16,544)

 

 

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

 

3


 

INVENTURE FOODS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

    

Six Months Ended

 

 

 

June 25,

    

June 27,

 

 

 

2016

 

2015

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net loss

 

$

(1,296)

 

$

(16,586)

 

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

 

 

 

 

 

 

 

Depreciation

 

 

3,381

 

 

3,405

 

Amortization

 

 

165

 

 

383

 

Deferred financing fee amortization

 

 

687

 

 

165

 

Provision for remaining product recall costs

 

 

 —

 

 

7,137

 

Impairment of intangible asset

 

 

 —

 

 

9,277

 

Provision for bad debts

 

 

32

 

 

187

 

Deferred income taxes

 

 

 —

 

 

69

 

Excess income tax benefit from stock-based compensation

 

 

 —

 

 

(42)

 

Stock-based compensation expense

 

 

740

 

 

760

 

(Gain) Loss on disposition of equipment

 

 

(58)

 

 

(14)

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

(2,785)

 

 

(2,697)

 

Inventories

 

 

10,590

 

 

(7,476)

 

Other assets and liabilities

 

 

2,230

 

 

(12,282)

 

Accounts payable and accrued liabilities

 

 

(1,884)

 

 

17,099

 

Net cash provided by (used in) operating activities

 

 

11,802

 

 

(615)

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(8,659)

 

 

(5,304)

 

Proceeds from the sale of property and equipment

 

 

 —

 

 

19

 

Payment of contingent consideration for Willamette Valley Fruit Company 

 

 

(340)

 

 

(230)

 

Payment of contingent consideration for Sin In A Tin

 

 

(3)

 

 

(2)

 

Net cash used in investing activities

 

 

(9,002)

 

 

(5,517)

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Net borrowings on U.S Bank line of credit

 

 

 —

 

 

4,361

 

Net payments on Wells Fargo line of credit

 

 

(3,261)

 

 

 —

 

Payments made on capital lease obligations

 

 

(10)

 

 

(253)

 

Borrowings on term loans

 

 

1,097

 

 

6,000

 

Repayments made on long term debt

 

 

(653)

 

 

(3,189)

 

Payment of loan financing fees

 

 

(1,050)

 

 

(300)

 

Proceeds from issuance of common stock under equity award plans

 

 

187

 

 

 —

 

Excess income tax benefit from stock-based compensation

 

 

 —

 

 

42

 

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

 

 

(226)

 

 

(349)

 

Net cash (used in) provided by financing activities

 

 

(3,916)

 

 

6,312

 

Net increase (decrease) in cash and cash equivalents

 

 

(1,116)

 

 

180

 

Cash and cash equivalents at beginning of year

 

 

2,319

 

 

495

 

Cash and cash equivalents at end of year

 

$

1,203

 

$

675

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$

4,060

 

$

1,286

 

Cash paid (refunded) during the period for income taxes

 

$

(3,377)

 

$

1,378

 

 

 

 

 

 

 

 

 

 

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

4


 

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 $282 million in annual net revenues for fiscal 2015.

 

We specialize in two primary product categories: healthy/natural food products and indulgent specialty snack products.  We sell our products nationally through a number of channels including: grocery stores, natural food stores, mass merchandisers, drug and convenience stores, club stores, value, vending, food service, industrial 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, other snack and food items, Willamette Valley Fruit CompanyTM brand frozen berries, Fresh FrozenTM brand frozen vegetables, fruits, biscuits and other frozen snacks, Jamba® brand blend-and-serve smoothie kits under license from Jamba Juice Company (“Jamba Juice”), Seattle’s Best Coffee® Frozen Coffee Blends brand blend-and-serve frozen coffee beverages under license from Seattle’s Best Coffee, LLC, Sin In A TinTM  chocolate pate and other frozen desserts and private label frozen fruit and healthy/natural snacks.

 

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

 

We operate in two segments: frozen products and snack products. The frozen products segment includes frozen fruits, vegetables, beverages and desserts 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, popcorn 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 nine locations. Our frozen berry products are processed in our Lynden, Washington, Bellingham, Washington, Jefferson, Georgia and two Salem, Oregon  facilities.  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 our Jefferson, Georgia, Thomasville, Georgia and Salem, Oregon facilities.  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 and vegetables for other manufacturers.  Our frozen desserts products are produced in our Pensacola, Florida and Salem, Oregon facilities.  Our snack products are manufactured at our Phoenix, Arizona and Bluffton, Indiana facilities, as well as select third-party facilities for certain products.

 

On April 23, 2015, we announced a voluntary product recall of certain varieties of the Company’s Fresh FrozenTM brand 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.  For a discussion of this product recall, refer to “Note 2 - Product Recall.” 

 

Our fiscal year ends on the last Saturday occurring in the month of December of each calendar year.  Accordingly, the second quarter of fiscal 2016 commenced March 27, 2016 and ended June 25, 2016.

 

5


 

Basis of Presentation

 

The condensed consolidated financial statements for the quarter ended June 25, 2016 are unaudited and include the accounts of Inventure Foods and all of its wholly owned subsidiaries. All significant intercompany amounts and transactions have been eliminated. The condensed consolidated financial statements, including the December 26, 2015 consolidated balance sheet data which was derived from audited financial statements, have been prepared in accordance with the instructions for Quarterly Reports on 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 (“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 condensed 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 26, 2015. The results of operations for the quarter ended June 25, 2016 are not necessarily indicative of the results expected for the full year. Changes to the classification of certain prior year amounts on the cash flow statement were made to reflect current year classification between deferred income taxes and change in other assets and liabilities. 

 

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

 

Level 2Quoted 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 3Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable

 

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

 

At June 25, 2016 and December 26, 2015, 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  at the respective dates set forth below (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 25, 2016

 

December 26, 2015

 

 

    

    

    

Non-qualified

    

 

 

    

Non-qualified

    

 

 

 

 

 

 

Deferred

 

Earn-out

 

Deferred

 

Earn-out

 

 

 

 

 

Compensation

 

Contingent

 

Compensation

 

Contingent

 

 

 

 

 

Plan

 

Consideration

 

Plan

 

Consideration

 

Balance Sheet Classification

 

 

 

Investments

 

Obligation

 

Investments

 

Obligation

 

Other assets

 

Level 1

 

 

591

 

$

 —

 

$

564

 

$

 —

 

Accrued liabilities

 

Level 3

 

 

 —

 

 

(263)

 

 

 —

 

 

(376)

 

Other liabilities

 

Level 3

 

 

 —

 

 

(1,269)

 

 

 —

 

 

(1,499)

 

 

 

 

 

$

591

 

$

(1,532)

 

$

564

 

$

(1,875)

 

 

Considerable judgment is required in interpreting market data to develop the estimate of fair value of our assets and liabilities.  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.

6


 

 

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

 

The fair value measurement of the earn-out contingent consideration obligation relates to the acquisitions of Sin In A TinTM 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 operations.  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. 

 

A summary of the activity of the fair value of the measurements using unobservable inputs (Level 3 liabilities) for the six months ended June 25, 2016 is as follows (in thousands):

 

 

 

 

 

 

 

 

    

Level 3

 

Balance at December 26, 2015

 

$

1,875

 

Earn-out compensation paid to Willamette Valley Fruit Company

 

 

(340)

 

Earn-out compensation paid to Sin In A Tin

 

 

(3)

 

Balance at June 25, 2016

 

$

1,532

 

 

Income Taxes

 

Income tax benefit was $0.3 million for the quarter ended June 25, 2016, compared to $1.2 million for the quarter ended June 27, 2015.  Our effective tax rate was 49.1% and 37.5% for the quarters ended June 25, 2016 and June 27, 2015, respectively.

 

Income tax benefit was $0.9 million for the six months ended June 25, 2016, compared to $9.4 million for the six months ended June 27, 2015.  Our effective tax rate was 40.9% and 36.2% for the six months ended June 25, 2016 and June 27, 2015, respectively.  

 

Loss Per Common Share

 

Basic loss per common share is computed by dividing net loss by the weighted average number of shares of Common Stock outstanding during the period.  Diluted loss 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 loss 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 loss per common share and is therefore not presented. 

 

For the quarters and six months ended June 25, 2016 and June 27, 2015, diluted loss per share is the same as basic loss per share, as the inclusion of potentially issuable Common Stock would be antidilutive.  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 antidilutive. 

 

7


 

Loss per common share was computed as follows for the quarters and six months ended June 25, 2016 and June 27, 2015 (in thousands, except per share data):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Quarter Ended

 

Six Months Ended

 

 

 

June 25,

    

June 27,

    

June 25,

    

June 27,

 

 

 

2016

 

2015

 

2016

 

2015

 

Basic Loss Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(278)

 

$

(1,951)

 

$

(1,296)

 

$

(16,586)

 

Weighted average number of common shares

 

 

19,628

 

 

19,566

 

 

19,616

 

 

19,574

 

Loss per common share

 

$

(0.01)

 

$

(0.10)

 

$

(0.07)

 

$

(0.85)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted Loss Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(278)

 

$

(1,951)

 

$

(1,296)

 

$

(16,586)

 

Weighted average number of common shares

 

 

19,628

 

 

19,566

 

 

19,616

 

 

19,574

 

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

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Adjusted weighted average number of common shares

 

 

19,628

 

 

19,566

 

 

19,616

 

 

19,574

 

Loss per common share

 

$

(0.01)

 

$

(0.10)

 

$

(0.07)

 

$

(0.85)

 

 

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.  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.

 

Recent Accounting Pronouncements

 

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

 

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

 

In May 2014, the FASB issued new guidance related to revenue recognition.  This new standard will replace all current 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 2018 fiscal year and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption.  We are evaluating the impact, if any, of adopting this new accounting standard on our financial statements.

 

In June 2014, the FASB issued new guidance related to stock compensation.  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

8


 

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.  The adoption of the standard at the beginning of fiscal 2016 did not have an impact on our financial statements.

 

In April 2015, the FASB issued an ASU to simplify the presentation of debt issuance costs. This ASU requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by this ASU. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015, and is applied retrospectively. We adopted this ASU in the first quarter of fiscal 2016.  The adoption of this ASU reduced our other assets and long-term debt, less current portion, by $5.8 million and $5.4 million as of June 25, 2016 and December 26, 2015, respectively.

 

In July 2015, the FASB issued an ASU to simplify the measurement of inventory.  This ASU requires inventory to be subsequently measured using the lower of cost and net realizable value, thereby eliminating the market value approach. Net realizable value is defined as the “estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.”  This ASU is effective for reporting periods beginning after December 15, 2016 and is applied prospectively. Early adoption is permitted. We are evaluating the impact, if any, of adopting this guidance on our financial statements and disclosure.

 

In September 2015, the FASB issued an ASU simplifying the accounting for measurement-period adjustments for business combinations.  This ASU requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustments are identified, including the cumulative effect of the change in provisional amount as if the accounting had been completed at the acquisition date.  This ASU is effective for reporting periods beginning after December 15, 2015 and is applied prospectively.  The adoption of this ASU had no impact on our financial statements.

 

In November 2015, the FASB issued an ASU that simplifies the presentation of deferred taxes by requiring deferred tax assets and liabilities to be offset and presented as a single noncurrent amount on the balance sheet. This ASU is effective for reporting periods beginning after December 15, 2016 and is applied retrospectively. We do not expect the adoption of this guidance to have a material impact on our financial statements. 

 

In February 2016, the FASB issued new guidance related to accounting for leases. The new standard requires the recognition of assets and liabilities arising from lease transactions on the balance sheet and the disclosure of key information about leasing arrangements. Accordingly, a lessee will recognize a lease asset for its right to use the underlying asset and a lease liability for the corresponding lease obligation. Both the asset and liability will initially be measured at the present value of the future minimum lease payments over the lease term. Subsequent measurement, including the presentation of expenses and cash flows, will depend on the classification of the lease as either a finance or an operating lease. The new standard is effective for fiscal years beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted. We are evaluating the impact, if any, of adopting this guidance on our financial statements and disclosure.

 

In March 2016, the FASB issued an ASU intended to simplify various aspects of the accounting for share-based payments. Excess tax benefits for share-based payments will be recorded as a reduction of income taxes and reflected in operating cash flows upon the adoption of this ASU. Excess tax benefits are currently recorded in equity and as financing activity under the current rules. This guidance is effective for reporting periods beginning after December 15, 2016. We are evaluating the impact, if any, of adopting this guidance on our financial statements and disclosure.

 

2.Product Recall

 

On April 23, 2015, we announced a voluntary product recall of certain varieties of the Company’s Fresh FrozenTM brand 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

9


 

statement of operations attributable to the recall for the quarter and six months ended June 27, 2015 are summarized as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

    

Quarter Ended

    

Six Months Ended

 

 

 

June 27, 2015

 

June 27, 2015

 

Net revenues

 

$

 —

 

$

 —

 

Cost of revenues (1)

 

 

1,127

 

 

16,387

 

Gross profit

 

 

(1,127)

 

 

(16,387)

 

Operating expenses:

 

 

 

 

 

 

 

Selling, general and administrative expenses (2)

 

 

1,267

 

 

1,500

 

Impairment of intangible asset (3)

 

 

 —

 

 

9,277

 

Operating loss

 

 

(2,394)

 

 

(27,164)

 

Interest expense, net

 

 

 —

 

 

 —

 

Loss before income taxes

 

 

(2,394)

 

 

(27,164)

 

Income tax benefit

 

 

897

 

 

9,812

 

Net loss

 

$

(1,497)

 

$

(17,352)

 


(1)

Additional cost of revenues represents the provision for the write-down of inventory on hand and for additional costs estimated to be incurred related to the recall, including product expected to be returned from customers and consumers. During the quarter and six months ended June 27, 2015, the Company incurred approximately $1.1 million of incremental production costs as a result of utilizing co-packers inventory. 

(2)

Additional selling, general and administrative costs consists of approximately $1.5 million of professional fees associated with the recall and $0.2 million to record additional accounts receivable reserves which was recorded in the first quarter of fiscal 2015 but reversed in the second quarter of fiscal 2015.  

(3)

Amount reflects a $9.3 million impairment charge recorded to write-off the carrying value of the Fresh Frozen customer relationships intangible asset.

 

 

 

3.Inventories

 

Inventories consisted of the following as of June 25, 2016 and December 26, 2015 (in thousands):

 

 

 

 

 

 

 

 

 

 

    

June 25,

    

December 26,

 

 

 

2016

 

2015

 

Finished goods

 

$

29,009

 

$

32,731

 

Raw materials

 

 

42,208

 

 

49,076

 

Inventories

 

$

71,217

 

$

81,807

 

 

 

10


 

4.Goodwill, Trademarks and Other Intangibles

 

Goodwill, trademarks and other intangibles, net, consisted of the following as of June 25, 2016 and December 26, 2015 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

    

Estimated

    

June 25,

    

December 26,

 

 

 

Useful Life

 

2016

 

2015

 

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

 

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

 

 

 

 

(91)

 

 

(86)

 

Willamette Valley Fruit Company - Customer relationship, gross carrying amount

 

10 years

 

 

3,200

 

 

3,200

 

Willamette Valley Fruit Company - Customer relationship, accum. amortization

 

 

 

 

(960)

 

 

(800)

 

Trademarks and other intangibles, net

 

 

 

$

14,553

 

$

14,718

 

 

Our amortization expense related to these intangibles was $83,000 and $82,000  for the quarters ended June 25, 2016 and June 27, 2015, respectively. For the six months ended June 25, 2016 and June 27, 2015, amortization expense totaled $165,000 and $383,000, respectively.  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 2 - Product Recall”), the Company reviewed the Fresh Frozen Foods goodwill and intangible assets for impairment.  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 on March 28, 2015.  We believe the carrying values of our remaining goodwill and intangible assets are appropriate as of June 25, 2016.

 

5.Accrued Liabilities

 

Accrued liabilities consisted of the following as of June 25, 2016 and December 26, 2015 (in thousands):

 

 

 

 

 

 

 

 

 

 

    

June 25,

    

December 26,

 

 

 

2016

 

2015

 

Accrued payroll and payroll taxes

 

$

2,108

 

$

1,114

 

Accrued royalties and commissions

 

 

1,010

 

 

1,081

 

Accrued advertising and promotion

 

 

844

 

 

820

 

Accrued berry purchase payments

 

 

5,013

 

 

3,096

 

Accrued other

 

 

2,722

 

 

2,518

 

Accrued liabilities

 

$

11,697

 

$

8,629

 

 

11


 

 

6.Term Debt and Line of Credit

 

ABL Credit Facility

 

On November 18, 2015, the Company entered into a five-year revolving credit agreement with Wells Fargo Bank, National Association (“Wells Fargo”), as administrative agent, and the other lenders party thereto (with all related loan documents, and as amended from time to time, the “ABL Credit Facility”). The ABL Credit Facility provides for a five-year, $50.0 million senior secured revolving credit facility.  The ABL Credit Facility also provides that, under certain conditions, we may increase the aggregate principal amount of loans outstanding thereunder by up to $10.0 million.  Borrowings under the ABL Credit Facility bear interest, at the Company’s option, at a base rate or the London interbank offered rate (“LIBOR”) plus, in each case, an applicable margin.  The ABL Credit Facility will mature, and the commitments thereunder will terminate, on November 17, 2020.

 

Events of default under the ABL Credit Facility include customary events, such as a cross-default provision with respect to other material debt. As of June 25, 2016, the Company is in compliance with all covenants of the ABL Credit Facility.

 

As of June 25, 2016, there was $22.7 million outstanding under the ABL Credit Facility and the net availability thereunder was $22.5 million.

 

Term debt consisted of the following as of June 25, 2016 and December 26, 2015 (in thousands):

 

 

 

 

 

 

 

 

 

 

    

June 25,

    

December 26,

 

 

 

2016

 

2015

 

Term loan credit facility through November 2020

 

$

84,788

 

 

85,000

 

Equipment term loan, Goodyear, Arizona, due monthly through April 2021

 

 

3,152

 

 

2,055

 

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

 

 

1,719

 

 

1,972

 

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

 

 

1,276

 

 

1,464

 

Capital lease obligations, primarily due September 2017

 

 

52

 

 

48

 

Long-term debt

 

 

90,987

 

 

90,539

 

Less: deferred financing fees, net

 

 

(5,777)

 

 

(5,413)

 

Less: current portion of long-term debt

 

 

(2,407)

 

 

(1,826)

 

Long-term debt, less current portion

 

$

82,803

 

$

83,300

 

 

Term Loan Credit Facility

 

Also on November 18, 2015 and concurrent with the execution of the ABL Credit Facility, Inventure Foods and certain of its subsidiaries entered into a five-year term loan credit agreement with BSP Agency, LLC, a Delaware limited liability company (“BSP”), as administrative agent, and the other lenders party thereto (with all related loan documents, and as amended from time to time, the “Term Loan Credit Facility”).  The Term Loan Credit Facility provides for a $85.0 million senior secured term loan that matures on November 17, 2020.  The Term Loan Credit Facility also provides that, under certain conditions, we may increase the aggregate principal amount of term loans outstanding thereunder by up to $25.0 million.  Borrowings under the Term Loan Credit Facility bear interest, at the Company’s option, at a base rate or LIBOR plus, in each case, an applicable margin.

 

The Term Loan Credit Facility contains customary negative covenants and also requires the Company, together with its subsidiaries, to comply with a Fixed Charge Coverage Ratio and a Total Leverage Ratio (each as defined in the Term Loan Credit Facility). The first Fixed Charge Coverage Ratio and Total Leverage Ratio measurement period was the end of the first quarter of fiscal 2016.  On March 9, 2016, the Company entered into that certain First Amendment to Credit Agreement, dated March 9, 2016, with BSP, as administrative agent, and the other lenders party thereto (the “Amendment”).  The Amendment amends the Term Loan Credit Facility to defer the Company’s obligation to comply with the Total Leverage Ratio until the end of the third quarter of fiscal 2016.

 

Events of default under the Term Loan Credit Facility include customary events such as a cross-default provision with respect to other material debt.  As of June 25, 2016 the Company is in compliance with all covenants of the Term Loan Credit Facility.

12


 

 

Equipment Loans

 

In August 2015, we entered into an equipment term loan with Banc of America Leasing & Capital LLC for $3.1 million of new kettles and related equipment for our Goodyear, Arizona facility.  The equipment term loan accrues interest at a rate of 3.07% and will be repaid over 60 recurring monthly payments commencing May 2016. 

 

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

 

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.

 

On or about February 17, 2016, the Company received a letter from one of its commercial customers requesting indemnity with respect to a lawsuit threatened against the customer in Florida alleging that certain kettle chip products sold by the customer and manufactured by the Company were improperly labeled as “natural.”  On March 7, 2016, the Company informed the commercial customer that the Company had no obligation to indemnify the commercial customer with respect to the matter.

 

On April 4, 2016, a complaint captioned Westmoreland County Employee Retirement Fund (“Westmoreland”) v. Inventure Foods Inc. (“Inventure” or “the Company”) et al., Case No. CV2016-002718, was filed in the Superior Court in Maricopa County, Arizona. Additional defendants are the Company’s Chief Executive Officer and Chief Financial Officer, Capital Foods, LLC, and the underwriters of  the secondary securities offering that closed September 14, 2014 (the “September 2014 Offering”).  The class action complaint alleges violations of the Securities Act and focuses on the Company’s frozen food facility in Jefferson, Georgia.  The plaintiff seeks certification as a class action, unspecified compensatory damages, rescission or a rescissory measure of damages, attorneys’ fees and costs, and other relief deemed appropriate by the court.  The Company intends to vigorously defend against the claims.

 

On May 6, 2016,  the Company removed the purported class action from Superior Court in Maricopa County to the United States District Court for the District of Arizona (“District Court”).  On May 26, 2016, plaintiff filed a motion to remand the purported class action to the Superior Court in Maricopa County.  On July 13, 2016, Inventure, along with our Chief Executive Officer and Chief Financial Officer, and Capital Foods, LLC, filed a response in opposition to the motion to remand.  The September 2014 Offering underwriters joined in our opposition brief.  The plaintiff filed its reply in support of the motion to remand on June 23, 2016.  The motion to remand remains pending before the district court. On July 5, 2016, the District Court ordered a stay of proceedings until the Court rules on the motion to remand. 

 

On July 11, 2016, the Company received a pre-suit notification and demand from Farbod Nikravesh (represented by Barbara Rohr of Faruqi & Faruqi).  No lawsuit has been filed.  Mr. Farbod purports to represent a class of consumers who purchased Boulder Canyon brand products advertised as “All Natural.”  Mr. Farbod alleges the

13


 

products contain non-natural ingredients, including but not limited to maltodextrin, dextrose, and citric acid.  He intends to file a class action for alleged violations of the California Legal Remedies Act (Cal. Civ. Code § 1750, et seq.), the California Unfair Competition Law (Cal. Bus. & Prof. Code § 17200, et seq.), the California False Advertising Act (Cal. Bus. & Prof. Code § 17500, et seq.), and other “common law and other statutory violations.”  To avoid suit, Mr. Farbod demands that the Company refrain from false and misleading marketing, issue an immediate recall, and make full restitution of all money obtained from the sale of Boulder Canyon chips.  The Company removed the challenged language (“All Natural”) from its packaging before receiving the letter, and intends to vigorously defend any class action filed.

 

Maryanne McGuiness (represented by Tim Howard of Howard & Associates) served the Company with a pre-lawsuit notification and demand on July 11, 2016.  No lawsuit has been filed.  Ms. McGuiness purports to represent a class of consumers who purchased Boulder Canyon kettle chips advertised as “All Natural” and “Non-GMO.”  Ms. McGuiness alleges the products contain non-natural and non-GMO ingredients, including but not limited to citric acid, disodium phosphate, corn, corn starch, corn meal, corn flour, corn masa, soluble corn fiber, corn syrup solids, maltodextrin, dextrose, fructose, and sucrose.  She intends to file a class action based on alleged violations of the Florida Deceptive and Unfair Trade Practices Act (Fla. Stat. 501.201, et seq.) and the Florida Misleading Advertising Statute (Fla. Stat. § 817.41), as well as for breach of express and implied warranties, unjust enrichment, and other contract and tort violations.  To avoid suit, Ms. McGuiness demands that the Company refrain from false and misleading advertising, identify consumers who purchased product during the limitations period, disgorge revenues from sales of products, and implement a corrective advertising campaign, including a disclaimer.  The Company removed “All Natural” from all packages and advertising of kettle cooked chips before receiving the letter, and intends to vigorously defend any class action filed.

 

8.Business Segments

 

Our operations consist of two reportable segments: frozen products and snack products.  The frozen products segment produces frozen fruits, vegetables, beverages and desserts 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, popcorn 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.

 

All products sold under our frozen products segment are considered part of the healthy/natural food category.  The products sold under our snack products segment include products considered part of the indulgent specialty snack food category, as well as products considered part of the healthy/natural food category. 

 

For the three months ended June 25, 2016 and June 27, 2015, net revenues of our healthy/natural food category totaled $59.4 million and $54.3 million, respectively.  For the three months ended June 25, 2016 and June 27, 2015, net revenues of our indulgent specialty snack food category totaled $9.9 million and $12.1 million, respectively.

 

For the six months ended June 25, 2016 and June 27, 2015, net revenues of our healthy/natural food category totaled $119.3 million and $120.3 million, respectively.  For the six months ended June 25, 2016 and June 27, 2015, net revenues of our indulgent specialty snack food category totaled $19.8 million and $23.7 million, respectively.

 

14


 

We do not allocate assets, selling, general and administrative expenses, income taxes or other income and expense to our reportable segments.  The following table present information about our reportable segments for the quarters and six months ended June 25, 2016 and June 27, 2015 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Frozen

    

Snack

    

 

 

 

 

 

Products

 

Products

 

Consolidated

 

Quarter Ended June 25, 2016

 

 

 

 

 

 

 

 

 

 

Net revenues from external customers

 

$

41,779

 

$

27,484

 

$

69,263

 

Depreciation and amortization included in segment gross profit

 

 

603

 

 

534

 

 

1,137

 

Segment gross profit

 

 

4,848

 

 

5,419

 

 

10,267

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended June 27, 2015

 

 

 

 

 

 

 

 

 

 

Net revenues from external customers

 

$

34,900

 

$

31,522

 

$

66,422

 

Depreciation and amortization included in segment gross profit

 

 

569

 

 

601

 

 

1,170

 

Segment gross profit

 

 

2,592

 

 

5,433

 

 

8,025

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 25, 2016

 

 

 

 

 

 

 

 

 

 

Net revenues from external customers

 

$

86,749

 

$

52,369

 

$

139,118

 

Depreciation and amortization included in segment gross profit

 

 

1,188

 

 

1,041

 

 

2,229

 

Segment gross profit

 

 

9,169

 

 

9,915

 

 

19,084

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 27, 2015

 

 

 

 

 

 

 

 

 

 

Net revenues from external customers

 

$

86,249

 

$

57,780

 

$

144,029

 

Depreciation and amortization included in segment gross profit

 

 

1,125

 

 

1,207

 

 

2,332

 

Segment gross profit

 

 

(4,897)

 

 

9,222

 

 

4,325

 

 

The following table reconciles reportable segment gross profit to our consolidated loss before income taxes for the quarters and six months ended June 25, 2016 and June 27, 2015 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Quarter Ended

    

Six Months Ended

 

 

 

June 25,

    

June 27,

 

June 25,

    

June 27,

 

 

 

2016

 

2015

 

2016

 

2015

 

Segment gross profit

 

$

10,267

 

$

8,025

 

$

19,084

 

$

4,325

 

Unallocated amounts:

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

(8,493)

 

 

(10,217)

 

 

(16,602)

 

 

(28,646)

 

Interest expense, net

 

 

(2,320)

 

 

(928)

 

 

(4,676)

 

 

(1,658)

 

Loss before income tax provision

 

$

(546)

 

$

(3,120)

 

$

(2,194)

 

$

(25,979)

 

 

 

15


 

The table below presents information about revenues for each group of similar products within our reportable segments for the quarters and six months ended June 25, 2016 and June 27, 2015 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended June 25, 2016

 

Quarter Ended June 27, 2015

 

 

    

 

 

    

% of Net

    

 

 

    

% of Net

 

 

 

Net Revenue

 

Revenues

 

Net Revenue

 

Revenues

 

Frozen Products:

 

 

 

 

 

 

 

 

 

 

 

Berries, beverages, blends and desserts

 

$

30,312

 

43.7

%  

$

29,038

 

43.8

%

Vegetables

 

 

11,467

 

16.6

%  

 

5,862

 

8.8

%

Total frozen

 

 

41,779

 

60.3

%  

 

34,900

 

52.6

%

Snack Products:

 

 

 

 

 

 

 

 

 

 

 

Indulgent specialty snacks (1)

 

 

9,872

 

14.3

%  

 

12,107

 

18.2

%

Healthy/natural snacks (2)

 

 

17,612

 

25.4

%  

 

19,415

 

29.2

%

Total snack

 

 

27,484

 

39.7

%  

 

31,522

 

47.4

%

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

69,263

 

100.0

%  

$

66,422

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 25, 2016