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| SNAK > SEC Filings for SNAK > Form 10-Q on 10-Nov-2009 | All Recent SEC Filings |
10-Nov-2009
Quarterly Report
This Quarterly Report on Form 10-Q, including all documents incorporated by
reference, includes "forward-looking" statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
Section 21E of the Securities Exchange Act of 1934, as amended, and the Private
Securities Litigation Reform Act of 1995, and The Inventure Group, Inc. (the
"Company") desires to take advantage of the "safe harbor" provisions thereof.
Therefore, the Company is including this statement for the express purpose of
availing itself of the protections of the safe harbor with respect to all of
such forward-looking statements. In this Quarterly Report on Form 10-Q, the
words "anticipates," "believes," "expects," "intends," "estimates," "projects,"
"will likely result," "will continue," "future" and similar terms and
expressions identify forward-looking statements. The forward-looking statements
in this Quarterly Report on Form 10-Q reflect the Company's current views with
respect to future events and financial performance. These forward-looking
statements are subject to certain risks and uncertainties, including
specifically the possibility that the Company will need additional financing due
to future operating losses or in order to implement the Company's business
strategy, the possible diversion of management resources from the day-to-day
operations of the Company as a result of strategic acquisitions, potential
difficulties resulting from the integration of acquired businesses with the
Company's business, other acquisition-related risks, lack of consumer acceptance
of existing and future products, dependence upon key license agreements,
dependence upon major customers, significant competition, risks related to the
food products industry, deteriorating economic conditions, volatility of the
market price of the Company's common stock, par value $.01 per share (the
"Common Stock"), the possible de-listing of the Common Stock from the Nasdaq
Capital Market if the Company fails to satisfy the applicable listing criteria
(including a minimum share price) in the future and those other risks and
uncertainties discussed herein, that could cause actual results to differ
materially from historical results or those anticipated. In light of these
risks and uncertainties, there can be no assurance that the forward-looking
information contained in this Quarterly Report on Form 10-Q will in fact
transpire or prove to be accurate. Readers are cautioned to consider the
specific risk factors described herein and in "Risk Factors" in the Company'
Annual Report on Form 10-K for the fiscal year ended December 27, 2008 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
publicly revise these forward-looking statements to reflect events or
circumstances that may arise after the date hereof. 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 section.
Results of Operations
Quarter ended September 26, 2009 compared to the quarter ended September 27, 2008
Net revenues for the third quarter of fiscal 2009 were $29.9 million, up $0.1 million, or 0.4% higher than the same period last year.
Snack division net revenues were $20.8 million, up 3.9% versus the same period last year. Key contributors were the Boulder Canyon Natural Foods™ brand, up 8% versus the same period last year, TGI Fridays, up 11% over last year, and private label sales which were up 61% for the quarter. These increases were partially offset by declines for both BURGER KING™ and Poore Brothers® branded products, both of which were compared in the quarter ended September 26, 2009 against last year's sales increase following the launch of these product lines in a national drug chain.
As anticipated, Rader Farms sales were soft for the quarter with revenues of $9.1million, down 6.8% versue last year. Typically Rader sales of frozen berries are lowest in the third quarter due to the availability of fresh berries at this time of year. This year there was a large increase in the availability of fresh berries at much lower prices, causing a decline in sales compared to last year.
Gross profit for the quarter ended September 26, 2009 decreased $0.4 million as compared to the quarter ended September 27, 2008, and also decreased as a percentage of net revenues (22.5% of net revenue for 2009 and 23.8% of net revenue for 2008). The decrease was attributable to the lower Rader sales for the quarter.
Selling, general and administrative expenses were $4.3 million in the third quarter of 2009 as compared to $5.0 million in the third quarter of 2008. These expenses decreased to 14.3% of net revenues in 2009, as compared to 16.7% of net revenues in 2008.
Net interest expense was $267,306 in the third quarter of 2009 compared to $318,890 in the third quarter of 2008. The decrease primarily relates to a change in accounting treatment of swap instruments. See "Interest Rate Swaps" for further detail.
Net income was $1.3 million, or $0.07 per basic and diluted share, compared to net income of $1.1 million, or $0.06 per basic and diluted share in the third quarter of last year.
Nine months ended September 26, 2009 compared to the nine months ended September 27, 2008
For the nine months ended September 26, 2009 net revenues increased 9.2%, or $7.9 million, to $93.1 million, compared with net revenue of $85.2 million in the first nine months of the previous year. Total net revenues for the nine months ended September 26, 2009 include $31.5 million from Rader Farms, representing an increase of 7%, versus the same period last year. For the snack business, total net revenues for the nine months ended September 26, 2009 were $61.6 million, representing an increase of 10.6%, from the $55.7 million of snack net revenues for the first nine months of 2008.
Gross profit for the nine months ended September 26, 2009 was $19.2 million, or 20.6% of net revenues, compared to $17.5 million, or 20.5% of net revenues for the nine months ended September 27, 2008. This increase of $1.7 million, or 9.6%, was attributable to the revenue growth at both the snack and Rader divisions, and the growth in pounds processed through the snack division plant. These gains were partially offset by a shift in sales in the snack division to lower margin channels, a result of the current economic environment and price increases in certain commodities.
Selling, general and administrative expenses increased to $13.1 million for the nine months ended September 26, 2009 from $12.8 million for the nine months ended September 27, 2008. Selling, general and administrative expenses were 14.1% of total net revenues for the nine months ended September 26, 2009 and 15.0% for the nine months ended September 27, 2008.
Net interest expense was $0.7 million in the first nine months of 2009 compared to $1.0 million in the first nine months of 2008. The Company changed its accounting treatment of swap instruments. See "Interest Rate Swaps" for further detail. The Company recognized $0.1 million of interest expense as a result of an interest rate swap in the first nine months of 2008, with no similar expense incurred in the first nine months of 2009.
Net income for the nine months ended September 26, 2009 was $3.2 million, or $0.18 per basic and diluted share, compared with net income of $2.2 million, or $0.12 per basic and diluted share, in the prior-year period.
Liquidity and Capital Resources
Net working capital was $7.2 million (a current ratio of 1.3:1) at September 26,
2009 and $4.5 million (a current ratio of 1.2:1) at December 27, 2008. For the
nine months ended September 26, 2009, the Company generated cash flow of $0.3
million from operating activities, invested $2.1 million in equipment, borrowed
a net $3.2 million on its line of credit, utilized $0.9 million to pay down
other debt and purchased $0.5 million of treasury shares. For the nine months
ended September 27, 2008, the Company generated cash flow of $1.7 million from
operating activities, invested $2.8 million in equipment, borrowed a net $1.9
million on its line of credit and utilized $0.9 million to pay down other debt.
Inventories increased $7.1 million as compared to December 27, 2008 balances,
primarily due to the processing of the 2009 Rader harvest season, which
commenced in June.
The Company's Goodyear, Arizona manufacturing and distribution facility is subject to a $1.5 million mortgage loan from Morgan Guaranty Trust Company of New York, bears interest at 9.03% per annum and is secured by the building and the land on which it is located. The loan matures on July 1, 2012; however monthly principal and interest installments of $16,825 are determined based on a twenty-year amortization period.
The Company's Bluffton, Indiana manufacturing and distribution facility was purchased for $3.0 million in December, 2006. The facility is subject to a $2.2 million mortgage loan from U.S. Bank National Association, bears interest at the 30 day LIBOR plus 165 basis points and is secured by the building and the land on which it is located. The interest rate associated with this debt instrument was fixed to 6.85% via an interest rate swap agreement with U.S. Bank National Association in December 2006. The loan matures in December, 2016; however monthly principal and interest installments of $18,392 are determined based on a twenty-year amortization period.
To fund the acquisition of Rader Farms the Company entered into a Loan Agreement (the "Loan Agreement") with U.S. Bank National Association ("U.S. Bank"). Each of our subsidiaries is a guarantor of the Loan Agreement, which is secured by a pledge of all of the assets of our consolidated group. The borrowing capacity available to us under the Loan Agreement consists of notes representing:
† a $15,000,000 revolving line of credit maturing on June 30, 2011; based on asset eligibility, there was $3.6 million of borrowing availability under the line of credit at September 26, 2009,
† an equipment term loan, secured by the equipment acquired, subject to a $5.8 million term loan from U.S. Bank National Association, and bearing interest at the 30 day LIBOR plus 165 basis points. The loan matures in May, 2014 and monthly principal installments are $71,429 plus interest and
† a real estate term loan, secured by a leasehold interest in the real property we are leasing from the former owners of Rader Farms in connection with the acquisition, subject to a $4.0 million real estate term loan from U.S. Bank National Association, and bearing interest at the 30 day LIBOR plus 165 basis points. The interest rate associated with this debt instrument was fixed to 4.28% via an interest rate swap agreement with U.S. Bank National Association in January 2008. The loan matures in July, 2017; however monthly principal and interest installments of $36,357 are determined based on a fifteen-year amortization period.
All borrowings under the revolving line of credit will bear interest at either
(i) the prime rate of interest announced by U.S. Bank from time to time or
(ii) LIBOR, plus the LIBOR Rate Margin (as defined in the revolving credit
facility note). The term loan will bear interest at LIBOR, plus the LIBOR Rate
Margin (as defined in the term loan note).
As is customary in such financings, U.S. Bank may terminate its commitments and accelerate the repayment of amounts outstanding and exercise other remedies upon the occurrence of an event of default (as defined in the Loan Agreement), subject, in certain instances, to the expiration of an applicable cure period. The agreement requires the Company to maintain compliance with certain financial covenants, including a minimum tangible net worth, a minimum fixed charge coverage ratio and a maximum leverage ratio. At September 26, 2009, the Company was in compliance with all of the financial covenants.
Interest Rate Swaps
See Footnote 5 "Long-Term Debt" in the Company's "Notes to Unaudited Condensed Consolidated Financial Statements" for detail regarding the Company's interest rate swaps.
Contractual Obligations
The Company's future contractual obligations consist principally of long-term debt, operating leases, minimum commitments regarding third party warehouse operations services, remaining minimum royalty payments due licensors pursuant to brand licensing agreements and severance charges to terminated executives. As of September 26, 2009 there have been no material changes to the Company's contractual obligations since its December 27, 2008 fiscal year end, other than scheduled payments. The Company currently has no material marketing or capital expenditure commitments.
Management's Plans
In connection with the implementation of the Company's business strategy, the Company may incur operating losses in the future and may require future debt or equity financings (particularly in connection with future strategic acquisitions, new brand introductions or capital expenditures). Expenditures relating to acquisition-related integration costs, market and territory expansion and new product development and introduction may adversely affect promotional and operating expenses and consequently may adversely affect operating and net income. These types of expenditures are expensed for accounting purposes as incurred, while revenue generated from the result of such expansion or new products may benefit future periods. Management believes that the Company will generate positive cash flow from operations during the next twelve months, which, along with its existing working capital and borrowing facilities, will enable the Company to meet its operating cash requirements for the next twelve months, including planned capital expenditures and recent improvements to our Goodyear, Arizona facility in 2009. The belief is based on current operating plans and certain assumptions, including those relating to the Company's future revenue levels and expenditures, industry and general economic conditions and other conditions. For instance, if current general economic conditions continue or worsen, we believe that our sales forecasts may prove to be less reliable than they have in the past as consumers may change their buying habits with respect to snack food products. Unexpected price increases for commodities used in our snack products, or adverse weather conditions affecting our Rader Farms crop yield could also impact our financial condition. If any of these factors change, the Company may require future debt or equity financings to meet its business requirements. There can be no assurance that any required financings will be available or, if available, will be on terms attractive to the Company.
Critical Accounting Policies and Estimates
There have been no significant changes to the Company's critical accounting policies and estimates since the filing of its Form 10-K for the year ended December 27, 2008.
Recent Accounting Pronouncements
In August 2009, the Financial Accounting Standards Board ("FASB") issued guidance on the measurement of liabilities at fair value. The guidance provides clarification that in circumstances in which a quoted market price in an active market for an identical liability is not available, an entity is required to measure fair value using a valuation technique that uses the quoted price of an identical liability when traded as an asset or, if unavailable, quoted prices for similar liabilities or similar assets when traded as assets. If none of this information is available, an entity should use a valuation technique in accordance with existing fair valuation principles. The Company adopted this guidance in the quarter ended September 26, 2009 and there was no material impact on the Company's financial position, results of operations or liquidity.
In June 2009, the FASB issued guidance related to the FASB Accounting Standards Codification ("ASC"). Effective for interim or annual financial periods ending after September 15, 2009, the ASC is the single source of authoritative generally accepted accounting principles in the United States of America ("U.S. GAAP") and changes the referencing of accounting standards. The ASC is not intended to change or alter existing U.S. GAAP; however the way authoritative literature is referred to has changed effective in the third quarter of 2009. The Company has adopted the provisions of the ASC effective September 26, 2009 and there was no material impact on the Company's financial position, results of operations or liquidity.
In May 2009, the FASB issued guidelines on subsequent event accounting which defines subsequent events as events or transactions that occur after the balance sheet date but before financial statements are issued or are available to be issued, and establishes general standards of accounting for and disclosure of subsequent events. The new guidance also includes a required disclosure of the date through which an entity has evaluated subsequent events, which for public entities is the date upon which the financial statements are issued. The guidance is effective for interim or annual financial periods ending after June 15, 2009, and shall be applied prospectively. The Company adopted this guidance for the interim period ended June 27, 2009 and there was no material impact on the Company's financial position, results of operations or liquidity.
In April 2009, the FASB issued three related sets of accounting guidance which sets forth rules related to determining the fair value of financial assets and financial liabilities when the activity levels have significantly decreased in relation to the normal market, guidance related to the determination of other-than-temporary impairments to include the intent and ability of the holder as an indicator in the determination of whether an other-than-temporary impairment exists and interim disclosure requirements for the fair value of financial instruments. The adoption of the three sets of accounting guidance did not have a material impact on the Company's financial position, results of operations or liquidity.
In March 2008, the FASB issued new disclosure requirements regarding derivative instruments and hedging activities. The new guidance applies to all entities and requires enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for and their effect on an entity's financial position, financial performance, and cash flows. This guidance is effective for fiscal years and interim periods beginning after November 15, 2008 and the adoption of this guidance had no impact on the Company's financial position, results of operations or liquidity.
In December 2007, the FASB issued new guidance on non-controlling interests in consolidated financial statements. This guidance establishes accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. It also establishes disclosure requirements that clearly identify and distinguish between the controlling and non-controlling interests and requires the separate disclosure of income attributable to controlling and non-controlling interests. The guidance is effective for fiscal years and interim periods beginning after December 15, 2008, and the adoption of this guidance had no impact on the Company's financial position, results of operations or liquidity.
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