U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

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

For the quarterly period ended ~~June 29,~~September 28, 2013

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

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

For the transition period from to

Commission File Number: 1-14556

INVENTURE FOODS, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware		86-0786101
(State or Other Jurisdiction of Incorporation or		(I.R.S. Employer
Organization)		Identification No.)


5415 East High Street, Suite #350 Phoenix, Arizona		85054
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s Telephone Number, Including Area Code: (623) 932-6200

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

Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes 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. (Check one):

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: ~~19,473,767~~19,420,060 as of ~~August 2,~~November 1, 2013.

Table of Contents

INVENTURE FOODS, INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

Table of Contents

Part I.	FINANCIAL INFORMATION

Item 1.	Financial Statements — Unaudited

	Condensed consolidated balance sheets as of ~~June 29,~~September 28, 2013 and December 29, 2012		1
	Condensed consolidated statements of income for the quarters and ~~six~~nine months ended ~~June 29,~~September 28, 2013 and ~~June 30,~~September 29, 2012		2
	Condensed consolidated statements of comprehensive income for the quarters and ~~six~~nine months ended ~~June 29,~~September 28, 2013 and ~~June 30,~~September 29, 2012		3
	Condensed consolidated statements of cash flows for the ~~six~~nine months ended ~~June 29,~~September 28, 2013 and ~~June 30,~~September 29, 2012		4
	Notes to unaudited condensed consolidated financial statements		5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		16

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		21

Item 4.	Controls and Procedures		21

Part II.	OTHER INFORMATION

Item 1.		Legal Proceedings	22

Item 1A.		Risk Factors	22

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	22

Item 3.		Defaults Upon Senior Securities	22

Item 4.		Mine Safety Disclosures	22

Item 5.		Other Information	22

Item 6.		Exhibits	22

		Signatures	23

		Exhibit 31.1
		Exhibit 31.2
		Exhibit 32.1
		EX-101 Instance Document
		EX-101 Schema Document
		EX-101 Calculation Linkbase Document
		EX-101 Labels Linkbase Document
		EX-101 Presentation Linkbase Document
		EX-101 Definition Linkbase Document

Table of Contents

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 29,			December 29,			September 28,			December 29,
	2013			2012			2013			2012
ASSETS
Current assets:
Cash and cash equivalents	$	426		$	419		$	819		$	419
Accounts receivable, net of allowance for doubtful accounts of $197 and $222 at June 29, 2013 and December 29, 2012, respectively	21,132			17,547
Accounts receivable, net of allowance for doubtful accounts of $209 and $222 at September 28, 2013 and December 29, 2012, respectively							22,228			17,547
Inventories	28,290			27,071			41,505			27,071
Deferred income tax asset	848			1,030			848			1,030
Other current assets	1,051			1,323			1,072			1,323
Total current assets	51,747			47,390			66,472			47,390

Property and equipment, net of accumulated depreciation of $30,994 and $28,524 at June 29, 2013 and December 29, 2012, respectively	40,348			34,051
Property and equipment, net of accumulated depreciation of $32,472 and $28,524 at September 28, 2013 and December 29, 2012, respectively							40,419			34,051
Goodwill	14,763			11,616			14,763			11,616
Trademarks and other intangibles, net	5,945			2,010			5,862			2,010
Other assets	881			827			948			827
Total assets	$	113,684		$	95,894		$	128,464		$	95,894

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	15,889		$	12,178		$	12,733		$	12,178
Accrued liabilities	9,950			8,415			17,424			8,415
Current portion of long-term debt	2,779			1,646			2,785			1,646
Total current liabilities	28,618			22,239			32,942			22,239

Long-term debt, less current portion	13,179			6,897			14,013			6,897
Line of credit	9,734			10,117			17,380			10,117
Deferred income tax liability	4,019			3,968			4,019			3,968
Interest rate swaps	605			766			577			766
Other liabilities	3,254			808			2,849			808
Total liabilities	59,409			44,795			71,780			44,795

Commitments and contingencies (Note 7)

Shareholders’ equity:
Common stock, $.01 par value; 50,000 shares authorized; 19,841 and 19,571 shares issued and outstanding at June 29, 2013 and December 29, 2012, respectively	198			196
Common stock, $.01 par value; 50,000 shares authorized; 19,842 and 19,571 shares issued and outstanding at September 28, 2013 and December 29, 2012, respectively							198			196
Additional paid-in capital	30,272			29,660			30,516			29,660
Accumulated other comprehensive loss	(279		)	(378		)	(262		)	(378		)
Retained earnings	24,555			22,092			26,703			22,092
	54,746			51,570			57,155			51,570
Less: treasury stock, at cost: 368 shares at June 29, 2013 and December 29, 2012	(471		)	(471		)
Less: treasury stock, at cost: 368 shares at September 28, 2013 and December 29, 2012							(471		)	(471		)
Total shareholders’ equity	54,275			51,099			56,684			51,099
Total liabilities and shareholders’ equity	$	113,684		$	95,894		$	128,464		$	95,894

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

Table of Contents

INVENTURE FOODS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per-share data)

(unaudited)

	Quarters Ended				Six Months Ended				Quarters Ended				Nine months ended
	June 29,		June 30,		June 29,		June 30,		September 28,		September 29,		September 28,		September 29,
	2013		2012		2013		2012		2013		2012		2013		2012
Net revenues	$	53,677	$	48,016	$	102,214	$	95,036	$	54,514	$	46,601	$	156,728	$	141,637
Cost of revenues	44,541		38,812		84,253		76,487		44,458		37,130		128,711		113,617
Gross profit	9,136		9,204		17,961		18,549		10,056		9,471		28,017		28,020
Selling, general and administrative expenses	6,889		6,379		13,846		12,880		6,395		6,535		20,241		19,415
Operating income	2,247		2,825		4,115		5,669		3,661		2,936		7,776		8,605
Interest expense, net	171		204		391		434		250		179		641		613
Income before income tax provision	2,076		2,621		3,724		5,235		3,411		2,757		7,135		7,992
Income tax provision	669		998		1,261		1,890		1,263		1,017		2,524		2,907
Net income	$	1,407	$	1,623	$	2,463	$	3,345	$	2,148	$	1,740	$	4,611	$	5,085

Earnings per common share:
Basic	$	0.07	$	0.09	$	0.13	$	0.18	$	0.11	$	0.09	$	0.24	$	0.27
Diluted	$	0.07	$	0.08	$	0.13	$	0.17	$	0.11	$	0.09	$	0.23	$	0.26

Weighted average number of common shares:
Basic	19,307		18,899		19,257		18,590		19,473		19,031		19,329		18,737
Diluted	19,702		19,555		19,698		19,460		19,843		19,690		19,746		19,537

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

Table of Contents

INVENTURE FOODS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

	Quarters Ended					Six Months Ended				Quarters Ended				Nine months ended
	June 29, 2013		June 30, 2012			June 29, 2013		June 30, 2012		September 28, 2013		September 29, 2012		September 28, 2013		September 29, 2012
Net income	$	1,407	$	1,623		$	2,463	$	3,345	$	2,148	$	1,740	$	4,611	$	5,085
Change in fair value of interest rate swaps, net of tax	65		(17		)	99		9		17		5		115		14
Comprehensive income	$	1,472	$	1,606		$	2,562	$	3,354	$	2,165	$	1,745	$	4,726	$	5,099

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

Table of Contents

INVENTURE FOODS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Six Months Ended						Nine months ended
	June 29, 2013			June 30, 2012			September 28, 2013			September 29, 2012

Cash flows from operating activities:
Net income	$	2,463		$	3,345		$	4,611		$	5,085
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments to reconcile net income to net cash provided by operating activities, net of effects of acquisitions:
Depreciation	2,544			2,278			4,023			3,473
Amortization	5			32			87			21
Provision for bad debts	(25		)	(7		)	(12		)	(11		)
Deferred income taxes	747			283			747			(66		)
Excess income tax benefit from exercise of stock options	(544		)	(104		)	(544		)	(106		)
Share-based compensation expense	381			584			626			872
Loss on disposition of equipment	20			3
Change in assets and liabilities, net of effects from acquisitions:
Loss (gain) on disposition of equipment							16			(20		)
Change assets and liabilities:
Accounts receivable	(3,560		)	478			(4,669		)	(2,932		)
Inventories	53			5,942			(13,162		)	3,553
Other assets and liabilities	309			767			274			1,100
Accounts payable and accrued liabilities	4,425			(2,844		)	8,293			(1,591		)
Net cash provided by operating activities	6,818			10,757			290			9,378

Cash flows from investing activities:
Purchase of equipment	(5,510		)	(4,651		)	(7,056		)	(5,254		)
Acquisition of Willamette Valley Fruit Company	(8,472		)	—			(8,472		)	—
Net cash used in investing activities	(13,982		)	(4,651		)	(15,528		)	(5,254		)

Cash flows from financing activities:
Net repayments on line of credit	(383		)	(4,156		)
Net borrowings (repayments) on line of credit							7,263			(1,744		)
Proceeds from issuance of common stock under equity award plans	133			81			133			81
Payments made on capital lease obligations	(243		)	(255		)	(365		)	(382		)
Borrowings on equipment term loan	8,500			—			10,048			—
Payments made on long-term debt	(858		)	(1,945		)	(1,445		)	(2,231		)
Payment of deferred financing fees	(78		)	—			(96		)	—
Excess income tax benefit from exercise of stock options	544			104			544			106
Payment of payroll taxes on stock-based compensation through shares withheld	(444		)	(26		)	(444		)	(26		)
Net cash provided by (used in) financing activities	7,171			(6,197		)	15,638			(4,196		)
Net increase (decrease) in cash and cash equivalents	7			(91		)	400			(72		)
Cash and cash equivalents at beginning of period	419			664			419			664
Cash and cash equivalents at end of period	$	426		$	573		$	819		$	592

Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	467		$	442		$	547		$	620
Cash paid during the period for income taxes	$	101		$	953		$	121		$	1,839

Supplemental disclosures of non-cash investing and financing transactions:
Capital lease obligations for the acquisition of property and equipment	$	16		$	—		$	16		$	—

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

Table of Contents

INVENTURE FOODS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ~~(continued)~~

(unaudited)

1. Organization and Summary of Significant Accounting Policies

Inventure Foods, Inc., a Delaware corporation (the “Company,” referred to as “we” “our” or “us”), is a leading marketer and manufacturer of healthy/natural and indulgent specialty snack food brands with more than $185 million in annual net ~~revenues.~~revenues for the most recently completed fiscal year.

On May 28, 2013, we completed our acquisition of the berry processing business of Willamette Valley Fruit Company (the “WVFC Acquisition”) for a cash purchase price of $9.3 million. An additional amount of up to $3.0 million is payable as contingent consideration in the form of an earn-out if certain performance thresholds are met during the period of up to 7 years following the closing.

We specialize in two primary product categories: 1) Healthy/Natural Food Products 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 the Healthy/Natural portfolio, products include Rader Farms® frozen berries, Boulder Canyon Natural Foods® brand products, Willamette Valley Fruit CompanyTM, Jamba® branded blend-and-serve smoothie kits under license from Jamba Juice Company, Seattle’s Best Coffee® branded frozen coffee drinks under license from Seattle’s Best Coffee, ~~LLC.~~LLC and private label frozen fruit and healthy/natural snacks. Production and distribution of our Seattle’s Best Coffee® products began during March of 2013. As part of the WVFC Acquisition we license the Willamette Valley Fruit Company trade name to the former owners of the berry processing business for certain products specified in the licensing agreement. ~~Production and distribution of our Seattle’s Best Coffee® products began during March of 2013.~~

In the Indulgent Specialty category, products include T.G.I. Friday’s® brand snacks under license from T.G.I. Friday’s Inc., 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® kettle cooked potato chips, Bob’s Texas Style® 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 manufacturers.

We operate manufacturing facilities in five locations. Our frozen berry products are manufactured in Lynden, Washington and two facilities in Salem, Oregon. Our frozen berry business grows, processes and markets premium berry blends, raspberries, blueberries, and rhubarb and purchases marionberries, cherries, cranberries, strawberries and other fruits from a select network of fruit growers for resale. The fruit is processed, frozen and packaged for sale and distribution to wholesale customers. Our frozen beverage products are packaged at our Lynden facility. We also use third party processors for certain frozen ~~products.~~products and package certain frozen fruits for other manufacturers. Our snack products are manufactured at our Arizona and Indiana plants as well as some third party plants for certain products.

Our fiscal year ends on the last Saturday occurring in the month of December of each calendar year. Accordingly, the ~~second~~third quarter of 2013 commenced ~~March 31,~~June 30, 2013 and ended ~~June 29,~~September 28, 2013.

Basis of Presentation

The consolidated financial statements include the accounts of Inventure Foods, Inc. and all of our wholly owned subsidiaries. All significant intercompany amounts and transactions have been eliminated. The financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all the information and footnotes required by accounting principles generally accepted in the United States of America. In the opinion of management, the condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary in order to make the 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 29, 2012. The results of operations for the quarter ended ~~June 29,~~September 28, 2013 are not necessarily indicative of the results expected for the full year.

Table of Contents

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

~~Table of Contents~~

~~INVENTURE FOODS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described as follows:

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

Level 2 Quoted prices in markets that are not considered to be active or financial instruments without quoted market prices, but for which all significant inputs are observable, either directly or indirectly;

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

A financial 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 29,~~September 28, 2013 and December 29, 2012, 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 summarized the valuation of our ~~financial instruments~~assets and liabilities measured at fair value on a recurring basis (in thousands):

		June 29, 2013							December 29, 2012						September 28, 2013							December 29, 2012
Balance Sheet Classification		Interest Rate Swaps			Non-qualified Deferred Compensation Plan Investments		Earn-out Contingent Consideration Obligation		Interest Rate Swaps			Non-qualified Deferred Compensation Plan Investments			Interest Rate Swaps			Non-qualified Deferred Compensation Plan Investments		Earn-out Contingent Consideration Obligation		Interest Rate Swaps			Non-qualified Deferred Compensation Plan Investments
Other assets														Level 1	$	—		$	535	$	—	$	—		$	440
Interest rate swaps	Level 1	$	—		$	—	$	—	$	—		$	—	Level 2	$	(577	)	$	—	$	—	$	(766	)	$	—
	Level 2	(605		)	—		—		(766		)	—
	Level 3	—			—		—		—			—
		$	(605	)	$	—	$	—	$	(766	)	$	—

Other assets	Level 1	$	—		$	492	$	—	$	—		$	440
	Level 2	—			—		—		—			—
	Level 3	—			—		—		—			—
		$	—		$	492	$	—	$	—		$	440

Other liabilities	Level 1	$	—		$	—	$	—	$	—		$	—	Level 3	$	—		$	—	$	2,400	$	—		$	—
	Level 2	—			—		—		—			—
	Level 3	—			—		2,400		—			—
		$	—		$	—	$	2,400	$	—		$	—

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 Company’s~~Our 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 WVFC Acquisition in May 2013, and is included in other long-term liabilities in the condensed consolidated balance sheets. We determined the fair value of the earn-out contingent consideration obligation using a discounted cash flow model. The key assumption used in applying the income approach is a discount rate which approximates our debt credit rating. 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 condensed consolidated statements of income. We determined the fair value of the earn-out contingent consideration obligation using a discounted cash flow model. The key assumption used in applying the income approach is a discount rate of 5.4% which approximates our debt credit rating. There were no changes in the fair value of our Level 3 earn-out contingent consideration obligation during the quarter ended ~~June 29,~~September 28, 2013.

Income Taxes

We use a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolutions of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more likely than not of being realized upon ultimate settlement.

Table of Contents

INVENTURE FOODS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

~~Income Taxes~~We file income tax returns in the U.S. federal and various state jurisdictions. We are no longer subject to examination by the IRS for years before 2010. With few exceptions, we are no longer subject to examination by state tax authorities for years before 2009. We believe that our income tax filing positions and deductions would be sustained on audit and do not anticipate any adjustments that would result in a material change to our financial position. We do not anticipate that the amount of unrecognized tax benefits will change significantly within the next 12 months.

It is our policy to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. We do not have any accrued interest or penalties associated with any unrecognized tax benefits as of September 28, 2013.

For the quarters ended ~~June 29,~~September 28, 2013 and ~~June 30,~~September 29, 2012 our provisions for income taxes ~~was $669,000~~were $1.3 million and ~~$998,000~~$1.0 million, respectively. The effective tax rate for the ~~second~~third quarter of 2013 was ~~32.2%~~37.0% compared with ~~38.1%~~36.9% for the ~~second~~third quarter of 2012. The change in the effective tax rate is due to a decrease in ~~our tax-effected equity compensation costs.~~the benefits of domestic production activity deductions and research credits.

For the ~~six~~nine months ended ~~June 29,~~September 28, 2013 and ~~June 30,~~September 29, 2012 our provisions for income taxes ~~was $1.3~~were $2.5 million and ~~$1.9~~$2.9 million, respectively. Our effective tax rate for the ~~six~~nine months ended ~~June 29,~~September 28, 2013 and ~~June 30,~~September 29, 2012 was ~~33.9%~~35.4% and ~~36.1%~~36.4%, respectively. The change in the effective tax rate is due to ~~a decrease in our tax-effected equity compensation costs.~~an increase of benefits from domestic production activities.

Earnings Per Common Share

Basic earnings per common share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period and includes unvested restricted stock grants. Diluted earnings per share is calculated by including all dilutive common shares such as stock options. ~~Under FASB ASC 260-10, unvested~~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.

Options to purchase ~~274,222~~215,010 and ~~217,403~~266,898 shares of our ~~Common Stock~~common stock were excluded from the computation of diluted earnings per share for both the quarter and ~~six~~nine months ended ~~June 29,~~September 28, 2013, respectively. Options to purchase ~~256,169~~204,700 and ~~282,038~~259,866 shares of our ~~Common Stock~~common stock were excluded from the computation of diluted earnings per share for the quarter and ~~six~~nine months ending ~~June 30,~~September 29, 2012, respectively. These exclusions were made because the options’ exercise prices were greater than the average market price of our common stock for those periods. Exercises of outstanding stock options or warrants are assumed to occur for purposes of calculating diluted earnings per share for periods in which their effect would not be anti-dilutive.

Earnings per common share was computed as follows for the quarters and ~~six~~nine months ended ~~June 29,~~September 28, 2013 and ~~June 30,~~September 29, 2012 (in thousands, except per share data):

	Quarters Ended				Six Months Ended				Quarters Ended				Nine months ended
	June 29, 2013		June 30, 2012		June 29, 2013		June 30, 2012		September 28, 2013		September 29, 2012		September 28, 2013		September 29, 2012
Basic Earnings Per Share:
Net income	$	1,407	$	1,623	$	2,463	$	3,345	$	2,148	$	1,740	$	4,611	$	5,085
Weighted average number of common shares	19,307		18,899		19,257		18,590		19,473		19,031		19,329		18,737
Earnings per common share	$	0.07	$	0.09	$	0.13	$	0.18	$	0.11	$	0.09	$	0.24	$	0.27

Diluted Earnings Per Share:
Net income	$	1,407	$	1,623	$	2,463	$	3,345	$	2,148	$	1,740	$	4,611	$	5,085
Weighted average number of common shares	19, 307		18,899		19,257		18,590		19,473		19,031		19,329		18,737
Incremental shares from assumed conversions of stock options and non-vested shares of restricted stock	395		656		441		870		370		659		417		800
Adjusted weighted average number of common shares	19,702		19,555		19,698		19,460		19,843		19,690		19,746		19,537
Earnings per common share	$	0.07	$	0.08	$	0.13	$	0.17	$	0.11	$	0.09	$	0.23	$	0.26

Table of Contents

INVENTURE FOODS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Stock Options and Stock-Based Compensation

Stock options and other stock based compensation awards expense are adjusted for estimated forfeitures and are recognized on a straight-line basis over the requisite service period of the award, which is currently five to ten years for stock options, and one to three years for restricted stock. We estimate future forfeiture rates based on our historical experience.

Compensation costs related to all share-based payment arrangements, including employee stock options, are recognized in the financial statements based on the fair value method of accounting. Excess tax benefits related to share-based payment arrangements are classified as cash inflows from financing activities and cash outflows from operating activities.

See Note 9 “Shareholder’s Equity” for additional information.

~~Table of Contents~~

~~INVENTURE FOODS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

Adoption of New Accounting Pronouncements

We have adopted all recently issued accounting pronouncements. The adoption of the accounting pronouncements, including those not yet effective, is not anticipated to have a material effect on our financial position or results of operations.

2. Acquisition

Willamette Valley Fruit Company

Effective May 28, 2013, we enhanced our berry purchase and freezing capabilities by acquiring Willamette Valley Fruit Company, LLC, one of the Pacific Northwest’s leading processors of high-quality berry products, for a cash purchase price of $9.3 million. Up to an additional $3.0 million in purchase price consideration may be due if certain performance thresholds are met during the period of up to seven years following the closing.

Under the terms of the agreement, we acquired substantially all of the berry processing equipment assets, including a new Individually Quick Frozen (“IQF”) tunnel, and other intellectual property and inventory rights. We also entered into leases of the land and buildings containing the purchased assets. We believe that the WVFC Acquisition enhances our berry purchasing and freezing capabilities and that the synergies from combining WVFC’s berry processing capabilities with Inventure’s Frozen products segment operations will elevate our ability to meet the growing consumer demand for frozen fruit.

The following table summarizes the purchase price and the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition and provides certain supplemental cash flow information (in thousands):

Purchase price paid as:
Cash and borrowings on revolving line of credit				$	8,472
Holdback consideration				800
Contingent consideration				2,400
Total purchase price				11,672
Fair value of net assets acquired:
Inventory	$	1,272
Property and equipment	3,335
Identifiable intangible assets	3,940
Current liabilities	(22		)
Total fair value of net assets acquired				8,525
Excess purchase price over fair value of net assets acquired (“goodwill”)				$	3,147

Under the acquisition method of accounting, the purchase price as shown in the table above is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. The excess purchase price over fair value of net assets acquired was recorded as goodwill. The purchase price was allocated using the information currently available, and we may adjust the purchase price allocation after obtaining more information regarding, among other things, asset valuations and revisions of preliminary estimates. We expect the purchase price allocation to be finalized by the end of the year. We may accrue additional charges in connection with the WVFC Acquisition, but the amounts cannot be reasonable estimated at present. The estimated values of current liabilities were based upon their historical costs on the date of acquisition due to their short-term nature.

~~Identified intangible assets acquired in the WVFC Acquisition totaled $3.9 million and consist of the following (in thousands):~~

Customer relationships

$
3,200

Trademark

740

Intangible assets, net at June 29, 2013

$
3,940

Table of Contents

INVENTURE FOODS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Identified intangible assets acquired in the WVFC Acquisition totaled $3.9 million and consist of the following (in thousands):

Customer relationships	$	3,200
Trademark	740
	3,940
Accumulated amortization	(80		)
Intangible assets, net at September 28, 2013	$	3,860

Amortization expense of the acquired customer relationships is determined using the straight-line method over an estimated economic life of 10 years. Amortization expense as of September 28, 2013 is estimated to be as follows (in thousands):

Years Ending,
2013	$	160	$	80
2014	320		320
2015	320		320
2016	320		320
2017	320		320
Thereafter	1,760		1,760
Total	$	3,200	$	3,120

Goodwill of $3.1 million represents the excess of the purchase price over the estimated fair value assigned to tangible and identifiable intangible assets acquired and liabilities assumed from WVFC, and was recorded entirely in our Frozen products segment. None of the goodwill is tax deductible.

The following unaudited pro forma consolidated results of operations (in thousands, except per share data) assumes the WVFC Acquisition occurred as of the beginning of the ~~prior year.~~earliest period presented. The pro forma results are not necessarily indicative of the actual results that would have occurred had the acquisition been completed as of the beginning of each of the periods presented, nor are they necessarily indicative of future consolidated results.

		Quarter Ended				Six Months Ended					Quarter Ended				Nine months ended
		June 29, 2013		June 30, 2012		June 29, 2013		June 30, 2012			September 28, 2013		September 29, 2012		September 28, 2013		September 29, 2012
Net revenues	As reported	$	53,677	$	48,016	$	102,214	$	95,036	As reported	$	54,514	$	46,601	$	156,728	$	141,637
	Pro forma	$	56,884	$	51,247	$	108,645	$	101,707	Pro forma	$	54,514	$	52,810	$	163,159	$	154,516

Net income	As reported	$	1,407	$	1,623	$	2,463	$	3,345	As reported	$	2,148	$	1,740	$	4,611	$	5,085
	Pro forma	$	1,564	$	1,637	$	2,706	$	3,374	Pro forma	$	2,148	$	2,291	$	4,854	$	5,666

Diluted earnings per share	As reported	$	0.07	$	0.08	$	0.13	$	0.17	As reported	$	0.11	$	0.09	$	0.23	$	0.26
	Pro forma	$	0.08	$	0.08	$	0.14	$	0.17	Pro forma	$	0.11	$	0.12	$	0.25	$	0.29

3. Inventories

Inventories consisted of the following (in thousands):

	June 29,		December 29,
	2013		2012		September 28, 2013		December 29, 2012
Finished goods	$	12,347	$	9,469	$	18,065	$	9,469
Raw materials	15,943		17,602		23,440		17,602
	$	28,290	$	27,071	$	41,505	$	27,071

Table of Contents

INVENTURE FOODS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

4. Goodwill, Trademarks and Other Intangibles

Goodwill, trademarks and other intangibles, net consisted of the following (in thousands):

	Estimated Useful Life	June 29, 2013			December 29, 2012			Estimated Useful Life		September 28, 2013			December 29, 2012
Goodwill:
Inventure Foods, Inc.		$	5,986		$	5,986				$	5,986		$	5,986
Rader Farms, Inc.		5,630			5,630					5,630			5,630
Willamette Valley Fruit Company		3,147			—					3,147			—
Total Goodwill		$	14,763		$	11,616				$	14,763		$	11,616

Trademarks
Inventure Foods, Inc.		$	896		896					$	896		896
Rader Farms, Inc.		1,070			1,070					1,070			1,070
Willamette Valley Fruit Company		740			—					740			—

Other intangibles:
Rader - Customer relationship, gross carrying amount	10 years	100			100			10 years		100			100
Rader - Customer relationship, accum. amortization		(61		)	(56		)			(64		)	(56		)
WVFC — Customer relationship, gross carrying amount	10 years	3,200			—			10 years	��	3,200			—
WVFC — Customer relationship, accum amortization										(80		)	—
Total trademarks and other intangibles, net		$	5,945		$	2,010				$	5,862		$	2,010

Our amortization expense related to these intangibles was ~~$3,000~~$83,000 and ~~$5,000~~$88,000 for the ~~quarters~~quarter and ~~six~~nine months ended ~~June 29,~~September 28, 2013 respectively, and ~~$8,000~~$3,000 and ~~$18,000~~$21,000 for the ~~quarters~~quarter and ~~six~~nine months ended ~~June 30,~~September 29, 2012, respectively.

Goodwill and trademarks are reviewed for impairment annually in the fourth fiscal quarter, or more frequently if impairment indicators arise. We believe the carrying values of our intangible assets are appropriate as of ~~June 29,~~September 28, 2013.

5. Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

June 29,
2013

December 29,
2012

Accrued payroll and payroll taxes

$
1,777

$
2,444

Accrued royalties and commissions

1,156

868

Accrued advertising and promotion

2,776

1,767

Accrued berry purchase payments

2,070

1,123

Accrued other

2,171

2,213

$
9,950

$
8,415

6.~~Long-Term Debt~~

~~Our long-term debt consists of the following (in thousands):~~

June 29,

December 29,

2013

2012

Equipment term loan due monthly through March 2020

8,223

—

Bluffton, IN mortgage loan due monthly through December 2016

1,959

2,000

Lynden, WA equipment term loan due monthly through May 2014

857

1,286

Lynden, WA real estate term loan due monthly through July 2017

2,917

3,028

Capital lease obligations, primarily due September 2017

2,002

2,229

15,958

8,543

Less current portion of long-term debt

(2,779
)
(1,646
)
Long-term debt, less current portion

$
13,179

$
6,897

	September 28, 2013		December 29, 2012
Accrued payroll and payroll taxes	$	2,068	$	2,444
Accrued royalties and commissions	1,099		868
Accrued advertising and promotion	1,812		1,767
Accrued berry purchase payments	8,851		1,123
Accrued other	3,594		2,213
	$	17,424	$	8,415

Table of Contents

INVENTURE FOODS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

6.Long-Term Debt

Our long-term debt consists of the following (in thousands):

	September 28,			December 29,
	2013			2012
Equipment term loan A due monthly through March 2020	7,944			—
Equipment term loan B due monthly through September, 2020	1,531			—
Bluffton, IN mortgage loan due monthly through December 2016	1,938			2,000
Lynden, WA equipment term loan due monthly through May 2014	643			1,286
Lynden, WA real estate term loan due monthly through July 2017	2,861			3,028
Capital lease obligations, primarily due September 2017	1,881			2,229
	16,798			8,543
Less current portion of long-term debt	(2,785		)	(1,646		)
Long-term debt, less current portion	$	14,013		$	6,897

On March 22, 2013, we entered into a Loan and Security Agreement (the “New Loan Agreement”) with U.S. Bank National Association (“U.S. Bank”). Each of our subsidiaries is a co-borrower under the New Loan Agreement, which is secured by all of the assets of our consolidated group. The New Loan Agreement amended and restated (a) the Loan Agreement (Revolving Line of Credit Loan and Term Loan) dated as of May 16, 2007, between us and U.S. Bank and (b) the Term Loan Agreement, dated as of June 28, 2007, between us and U.S. Bank ((a) and (b) collectively, the “Prior Agreement”). U.S. Bank extended certain term and revolving loans to us under the Prior Agreement. We entered into the New Loan Agreement in substitution of the Prior Agreement and not in satisfaction thereof. The additions to the New Loan Agreement consisted of:

· A $30.0 million revolving line of credit maturing on March 22, 2018; ~~$9.7~~$17.4 million was outstanding at ~~June 29,~~September 28, 2013. Based on eligible assets, there was ~~$15.7~~$12.6 million of additional borrowing availability under the line of credit at ~~June 29,~~September 28, 2013. The WVFC Acquisition was funded, in part, using borrowings under the revolving line of credit. All borrowings under the revolving line of credit will bearing interest at the 30-day LIBOR rate plus a floating rate of interest which is set quarterly between the range of 1.125% and 1.750% depending on our financial performance. As of ~~June 29,~~September 28, 2013 the interest rate on the revolving line of credit was ~~1.5%~~1.6%.

· Equipment term loan A due March 2020; interest at 2.69%; secured by lien on certain equipment purchased after 2009 at all three of our manufacturing facilities as well as our personal property business assets.

·Equipment term loan B due September 2020; interest at 3.12%. On August 14, 2013, we entered into an Equipment Term Loan “Term B” to finance equipment located at Willamette Valley Fruit Company.

The New Loan Agreement maintained the terms and borrowing capacity of the Prior Agreement with respect to the following:

· Bluffton, IN 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 building in Bluffton, IN.

· Lynden, WA equipment term loan due May 2014; interest at LIBOR plus 165 basis points; collateralized by equipment purchased as part of the acquisition of Rader Farms, Inc. in Lynden, WA in May 2007. As of ~~June 29,~~September 28, 2013 the interest rate on the equipment term loan was ~~1.5%~~1.6%.

· Lynden, WA 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, WA.

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 New 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 New Loan Agreement as defined in the agreement. As compared to the Prior Agreement, the maximum leverage ratio under the New Loan Agreement was increased to 3.25 from 3.0 to 1.0 and a minimum asset coverage ratio of 1.75 to 1.0 was added, the minimum fixed charge coverage ratio of 1.2 to 1.0 was not changed. At ~~June 29,~~September 28, 2013, we were in compliance with all of the financial covenants.

The present value of minimum lease payments under our capital lease and the current portion thereof are included in our debt balances as summarized above. The value of the equipment held under the capital lease of $3.5 million is included in property and equipment. Accumulated depreciation on the capital lease assets was ~~$1.0~~$1.1 million and $810,000 as of ~~June 29,~~September 28, 2013 and December 29, 2012, respectively.

Table of Contents

INVENTURE FOODS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Interest Rate Swaps

We entered into an interest rate swap in 2006 to convert the interest rate of the mortgage loan to purchase the Bluffton, Indiana plant from the contractual rate of 30 day LIBOR plus 165 basis points to a fixed rate of 6.85%. The swap has a fixed pay-rate of 6.85% and a notional amount of approximately ~~$2.0~~$1.9 million at ~~June 29,~~September 28, 2013 and expires in December 2016. The interest rate swap had fair value of ~~$277,000~~$262,000 at ~~June 29,~~September 28, 2013, which is recorded as a liability on the accompanying condensed consolidated balance sheet. The swap value was determined in accordance with the fair value measurement guidance discussed earlier using Level 2 observable inputs and approximates the loss that would have been realized if the contract had been settled on ~~June 29,~~September 28, 2013.

~~Table of Contents~~

~~INVENTURE FOODS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

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 amounts to match the expected pay down of the debt. The notional value of the swap at ~~June 29,~~September 28, 2013 was $2.9 million. 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 ~~$328,000~~$315,000 at ~~June 29,~~September 28, 2013, which is recorded as a liability on the accompanying condensed consolidated balance sheet. This value was determined in accordance with the fair value measurement guidance discussed earlier using Level 2 observable inputs and approximates the loss that would have been realized if the contract had been settled on ~~June 29,~~September 28, 2013.

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.

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 herein, and Jamba Juice has tendered defense of these matters to us.

In March 2012, we learned that the Jamba Juice ~~Company~~ was named as a defendant in a putative class action filed in the Federal Court for the North District of California and captioned ~~Kevin~~ Anderson v. Jamba Juice Company ~~which~~ (the “Anderson matter”). The plaintiff claims that the use of the words “all natural” to describe the Smoothie Kits is misleading and deceptive to consumers and violates various California consumer protection statutes and unfair competition statutes. The ~~suit~~Anderson matter is one of several “all natural” lawsuits recently brought against various food manufacturers and distributors in California. In an amended complaint, the plaintiff also alleged violations of the federal Magnuson-Moss Warranty Act, but the court dismissed those claims in ~~a ruling issued in~~ August 2012. In a second amended complaint filed in September 2012, we were added as a defendant. ~~Under our license agreement with~~Pursuant to the parties’ stipulation, on September 3, 2013 the court dismissed the Anderson matter.

Table of Contents

INVENTURE FOODS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

On June 28, 2013 a class action complaint against Jamba Juice Company ~~we are obligated~~ and ~~have agreed to indemnify and defend~~Inventure, captioned Lilly v. Jamba Juice Company et al (the “Lilly matter”), was filed in the ~~suit, and Jamba has tendered defense~~Federal Court for the Northern District of California that makes nearly identical allegations as those made in the ~~claim to us.~~Anderson matter, except that the new complaint also includes two additional allegedly non-natural ingredients. The plaintiffs in this new action are represented by the same counsel that represented the plaintiff in the Anderson matter. While we currently believe the “all natural” claims on the Smoothie Kits are not misleading and in full compliance with FDA guidelines, we are investigating the claims asserted in the ~~action,~~Lilly matter, and intend to vigorously defend against them. ~~The plaintiff~~On September 17, 2013, we filed a motion ~~on July 15, 2013~~to dismiss seeking to dismiss plaintiffs’ claims as to gelatin and the Orange Dream Machine smoothie kit. The motion to dismiss has been fully briefed, and oral argument is set for November 21, 2013. The plaintiffs are seeking to certify a class of all persons in California who bought certain of the Jamba Juice Smoothie Kits. ~~Our opposition to the~~The plaintiffs will file their motion ~~is due on September 30, 2013, and the court has scheduled a hearing on the motion on December 5, 2013. On June 28, 2013, two new plaintiffs filed a separate~~for class ~~action complaint against~~certification within sixty days after Jamba Juice ~~Company~~ and Inventure ~~Foods captioned Lily v. Jamba Juice Company~~have filed an answer in the same court, using the same plaintiff’s counsel and making nearly identical allegations as in the prior Anderson case. On July 15, 2013, the plaintiff in Anderson filed a motion to consolidate the Lily case, ~~with Anderson. Our response to the motion to consolidate~~or by February 3, 2014, whichever is ~~due on July 29, 2013 and our response to the Lilly complaint is due September 16, 2013.~~later.

8. Business Segments

Our operations consist of two reportable segments: Frozen products and Snack products. The Frozen segment produces frozen berries and frozen beverages, for sale primarily to club stores, groceries, ~~and~~ mass merchandisers and, with the acquisition of WVFC, to other companies as raw ingredients. The results of operations of WVFC have been consolidated into the Frozen segment since the WVFC Acquisition. The Snack segment produces potato chips, kettle chips, potato crisps, potato skins, pellet snacks, sheeted dough products 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 sell to external customers internationally; however, the revenues attributable to those 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 and nine months ended September 28, 2013 and September 29, 2012 (in thousands):

	Frozen Products		Snack Products		Consolidated
Quarter ended September 28, 2013
Net revenues from external customers	$	27,480	$	27,034	$	54,514
Depreciation and amortization included in segment gross profit	306		584		890
Segment gross profit	6,221		3,835		10,056
Goodwill	8,777		5,986		14,763

Quarter ended September 29, 2012
Net revenues from external customers	$	22,801	$	23,800	$	46,601
Depreciation and amortization included in segment gross profit	257		507		764
Segment gross profit	5,323		4,148		9,471
Goodwill	5,630		5,986		11,616

Nine months ended September 28, 2013
Net revenues from external customers	$	82,037	$	74,691	$	156,728
Depreciation and amortization included in segment gross profit	842		1,603		2,445
Segment gross profit	15,615		12,402		28,017
Goodwill	8,777		5,986		14,763

Nine months ended September 29, 2012
Net revenues from external customers	$	68,806	$	72,831	$	141,637
Depreciation and amortization included in segment gross profit	690		1,498		2,188
Segment gross profit	13,383		14,637		28,020
Goodwill	5,630		5,986		11,616

1213

Table of Contents

INVENTURE FOODS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

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 and six months ended June 29, 2013 and June 30, 2012 (in thousands):

Frozen
Products

Snack
Products

Consolidated

Quarter ended June 29, 2013

Net revenues from external customers

$
27,921

$
25,756

$
53,677

Depreciation and amortization included in segment gross profit

287

524

811

Segment gross profit

4,446

4,690

9,136

Goodwill

8,777

5,986

14,763

Quarter ended June 30, 2012

Net revenues from external customers

$
23,194

$
24,822

$
48,016

Depreciation and amortization included in segment gross profit

217

501

718

Segment gross profit

3,810

5,394

9,204

Goodwill

5,630

5,986

11,616

Six months ended June 29, 2013

Net revenues from external customers

$
54,557

$
47,657

$
102,214

Depreciation and amortization included in segment gross profit

536

1,019

1,555

Segment gross profit

9,394

8,567

17,961

Goodwill

8,777

5,986

14,763

Six months ended June 30, 2012

Net revenues from external customers

$
46,005

$
49,031

$
95,036

Depreciation and amortization included in segment gross profit

433

991

1,424

Segment gross profit

8,060

10,489

18,549

Goodwill

5,630

5,986

11,616

The following table reconciles reportable segment gross profit to our consolidated income before income tax provision the quarters and ~~six~~nine months ended ~~June 29,~~September 28, 2013 and ~~June 30,~~September 29, 2012 (in thousands):

	Quarters Ended						Six Months Ended						Quarters Ended						Nine months ended
	June 29, 2013			June 30, 2012			June 29, 2013			June 30, 2012			September 28, 2013			September 29, 2012			September 28, 2013			September 29, 2012
Segment gross profit	$	9,136		$	9,204		$	17,961		$	18,549		$	10,056		$	9,471		$	28,017		$	28,020
Unallocated amounts:
Selling, general and administrative expenses	(6,889		)	(6,379		)	(13,846		)	(12,880		)	(6,395		)	(6,535		)	(20,241		)	(19,415		)
Interest expense, net	(171		)	(204		)	(391		)	(434		)	(250		)	(179		)	(641		)	(613		)
Income before income tax provision	$	2,076		$	2,621		$	3,724		$	5,235		$	3,411		$	2,757		$	7,135		$	7,992

9. Shareholders’ Equity

The 2005 Plan was approved at our 2005 Annual Meeting of Shareholders and initially reserved for issuance of 410,518 shares of Common Stock, which is the number of reserved but unissued shares available for issuance under the 1995 Plan. The number of shares of 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 a series of amendments to the 2005 Plan approved by our shareholders. If any shares of 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 awards granted under the 2005 Plan may include: nonqualified stock options, incentive stock options, restricted stock, restricted stock units, stock appreciation rights, performance units and stock-reference awards. Prior to May 2008, all stock option grants had a five year term. The fair value of these stock option grants is amortized to expense over the service period, generally five years for employees and one year for the Board of Directors. In May 2008, our Board of Directors approved a 10 year term for all future stock option grants, with vesting periods of five years and one year for employees and Board of Director members, respectively.

~~Table of Contents~~

~~INVENTURE FOODS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

Restricted Common Stock and Performance Shares

Restricted share activity for the ~~six~~nine months ending ~~June 29,~~September 28, 2013 was as follows:

	Number		Weighted Average Grant Date Fair Value		Number		Weighted Average Grant Date Fair Value
Balance, December 29, 2012	519,437		$	4.64	519,437		$	4.64
Granted	107,500		$	7.20	108,750		$	7.34
Vested	(135,977	)	$	4.17	(140,977	)	$	4.37
Forfeited	(100,860	)	$	3.39	(100,860	)	$	3.39
Balance at June 29, 2013	390,100		$	5.83
Balance at September 28, 2013					386,350		$	5.83

During the three months ended ~~June 29,~~September 28, 2013 and ~~June 30,~~September 29, 2012, we recorded total share-based compensation expense from restricted stock of ~~$39,000~~$101,000 and ~~$46,000,~~$158,000, respectively. During the ~~six~~nine months ended ~~June 29,~~September 28, 2013 and ~~June 30,~~September 29, 2012, we recorded total share-based compensation expense from restricted stock of ~~$95,000~~$196,000 and ~~$111,000,~~$270,000, respectively. As of ~~June 29,~~September 28, 2013 the total unrecognized costs related to non-vested restricted stock awards granted was ~~$1.0 million,~~$619,000, which is expected to be recognized over a weighted average period of ~~1.35~~1.10 years. This expected compensation expense does not reflect any new awards, or modifications to existing awards, that could occur in the future.

Options

The following table summarizes stock option activity during the ~~six~~nine months ended ~~June 29,~~September 28, 2013:

Options
Outstanding

Weighted
Average
Exercise Price

Aggregate
Intrinsic Value
(in-the-money
options)

Weighted Average
Remaining
Contractual Life
(in years)

Outstanding at December 29, 2012

1,222,727

$
3.26

Granted

225,000

$
7.22

Exercised

(429,027
)
$
2.23

Forfeited or expired

—

$
—

Outstanding at June 29, 2013

1,018,700

$
4.57

$
3,863,845

7.66

The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on our closing stock price of $8.36 as of June 29, 2013, which would have been received by the option holders had all option holders exercised options and sold the underlying shares on that date.

We recorded total share-based compensation expense from stock options of approximately $148,000 and $407,000 during the quarters ended June 29, 2013 and June 30, 2012, respectively. We recorded total share-based compensation expense from stock options of approximately $286,000 and $473,000 during the six months ended June 29, 2013 and June 30, 2012, respectively. As of June 29, 2013 the total unrecognized costs related to non-vested stock option awards granted was $1.6 million, which is expected to be recognized over a weighted average period of 3.04 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 information about stock options outstanding and exercisable at June 29, 2013:~~

Range of
Exercise Prices

Options
Outstanding

Weighted
Average
Remaining
Contractual
Life
(in years)

Weighted
Average
Exercise
Price

Options
Exercisable

Weighted
Average
Exercise
Price

$ 1.70 - $2.40

278,400

5.38

$
2.02

184,400

$
2.05

$ 3.12 - $4.16

316,900

7.37

$
3.76

145,600

$
3.70

$ 4.28 - $7.21

413,400

9.36

$
6.83

59,400

$
6.45

$ 7.38 - $7.61

10,000

9.80

$
7.50

—

$
—

1,018,700

7.66

$
4.57

389,400

$
3.34

	Options Outstanding		Weighted Average Exercise Price		Aggregate Intrinsic Value (in-the-money options)		Weighted Average Remaining Contractual Life (in years)
Outstanding at December 29, 2012	1,222,727		$	3.26
Granted	227,500		$	7.25
Exercised	(429,027	)	$	2.23
Forfeited or expired	(5,000	)	$	7.38
Outstanding at September 28, 2013	1,016,200		$	4.57	$	6,040,475	7.39

Table of Contents

INVENTURE FOODS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on our closing stock price of $10.51 as of September 28, 2013, which would have been received by the option holders had all option holders exercised options and sold the underlying shares on that date.

We recorded total share-based compensation expense from stock options of approximately $144,000 and $129,000 during the quarters ended September 28, 2013 and September 29, 2012, respectively. We recorded total share-based compensation expense from stock options of approximately $430,000 and $602,000 during the nine months ended September 28, 2013 and September 29, 2012, respectively. As of September 28, 2013 the total unrecognized costs related to non-vested stock option awards granted was $1.4 million, which is expected to be recognized over a weighted average period of 2.80 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 information about stock options outstanding and exercisable at September 28, 2013:

Range of Exercise Prices	Options Outstanding	Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price		Options Exercisable	Weighted Average Exercise Price
$ 1.70 - $2.40	278,400	5.13	$	2.02	184,400	$	2.05
$ 3.12 - $4.16	316,900	7.13	$	3.76	146,600	$	3.70
$ 4.28 - $7.21	413,400	9.07	$	6.83	69,400	$	6.56
$ 7.61 - $9.68	7,500	9.77	$	8.30	—	$	—
	1,016,200	7.39	$	4.57	400,400	$	3.44

The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for the quarters and ~~six~~nine months ended ~~June 29,~~September 28, 2013 and ~~June 30,~~September 29, 2012:

Quarters Ended

Six Months Ended

June 29,
2013

June 30,
2012

June 29,
2013

June 30,
2012

Expected dividend yield (%)

—

—

—

—

Expected volatility (%)

54

56

54-55

56-58

Risk-free interest rate (%)

2.0-2.2

1.7

1.9 – 2.2

1.7 - 3.5

Expected life (years)

5.5-6.5

5.5-6.5

5.5-6.5

5.5-6.5

	Quarters Ended		Nine months ended
	September 28, 2013	September 29, 2012	September 28, 2013	September 29, 2012
Expected dividend yield (%)	—	—	—	—
Expected volatility (%)	53-54	56	53-55	56-58
Risk-free interest rate (%)	2.0-2.9	1.7	1.9 – 2.9	1.7 - 3.5
Expected life (years)	5.5-6.5	5.5-6.5	5.5-6.5	5.5-6.5

The expected dividend yield was based on our expectation of future dividend payouts. The volatility assumption was based on historical volatility during the time period that corresponds to the expected life of the option. The expected life (estimated period of time outstanding) of stock options granted was estimated based on historical exercise activity. The risk-free interest rate assumption was based on the interest rate of U.S. Treasuries on the date the option was granted.

Table of Contents

INVENTURE FOODS, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

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

Forward Looking Information

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, Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) regarding our business, financial condition and results of operations. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and we are including this statement for purposes of complying with these safe-harbor provisions. All statements other than statements of historical information provided or incorporated by reference herein may be deemed to be forward-looking statements. Without limiting the foregoing, the words “anticipates,” “believes,” “expects,” “intends,” “estimates,” “projects,” “will likely result,” “will continue,” “future” and other similar terms and expressions are intended to identify forward-looking statements. The forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events and financial performance; however, these forward-looking statements involve risks and uncertainties. Factors that could cause our actual results to differ materially from those reflected in forward-looking statements include, but are not limited to, the factors set forth under the heading “Risk Factors” in our most recent Annual Report Form 10-K, as updated by our Quarterly Report on Form 10-Q for the quarter ended ~~March 30,~~September 28, 2013, and the risks discussed in our other filings from time to time with the U.S. Securities and Exchange Commission (the “SEC”).

Any or all forward-looking statements in this Quarterly Report on Form 10-Q and in any other public filings or statements we make may turn out to be incorrect. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Many of the factors discussed in our filings with the SEC may impact future results. These factors should be considered in conjunction with any discussion of operations or results by us or our representatives, including any forward-looking discussion, as well as comments contained in press releases, presentations to securities analysts or investors or other communications by us or our representatives. You should not place undue reliance on any forward-looking statements, which reflect management’s analysis, judgment, belief or expectation only as of the date thereof. Except as may be required by law, we undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that arise after the date of this report.

The following discussion should be read in conjunction with the condensed consolidated financial statements and the related notes that appear elsewhere in this Quarterly Report on Form 10-Q.

Quarterly Overview

We are a leading specialty food marketer and manufacturer of healthy/natural and indulgent specialty snack food brands. Our products are marketed under a strong portfolio of brands, including Rader Farms®, T.G.I. Friday’s®, Boulder Canyon®, Jamba®, Poore Brothers®, Nathan’s Famous®, Vidalia®, Bob’s Texas Style®, Tato Skins® and Willamette Valley Fruit CompanyTM. T.G.I. Friday’s®, Jamba®, Nathan’s Famous®, Seattle’s Best Coffee® and Vidalia® are licensed brand names. As part of the WVFC Acquisition we license the Willamette Valley Fruit Company trade name to the former owners of the berry processing business for certain products specified in the licensing agreement.

On May 28, 2013, we completed our acquisition of the berry processing business of Willamette Valley Fruit Company, LLC, for a cash purchase price of $9.3 million (“WVFC Acquisition”). An additional amount of up to $3.0 million is payable as contingent consideration in the form of an earn-out if certain performance thresholds are met during the period of up to 7 years following the closing. We believe that the WVFC Acquisition enhances our berry purchasing and freezing capabilities and that the synergies from combining the berry processing capabilities with our Frozen products segment operations will elevate our ability to meet the growing consumer demand for frozen fruit.

On September 24, 2013, we announced our signing of a letter of intent to purchase substantially all of the assets of Fresh Frozen Foods, LLC, a frozen vegetable processor, and the parties anticipate that definitive documents will be signed and closed on or about November 8, 2013 (the “Fresh Frozen Transaction”). The letter of intent, which is non-binding except for confidentiality and no-shop provisions, contemplates a purchase price of $38 million at closing, plus deferred consideration in the form of an earn-out of up to $3 million based on 2014 performance, subject to certain closing and post-closing purchase price adjustments. The Fresh Frozen Transaction remains subject to completion of due diligence, agreement on a definitive purchase agreement and other customary closing conditions. We will fund the purchase price from a new senior syndicated credit facility that will be funded prior to closing.

Table of Contents

Our discussion and analysis of financial condition and results of operations 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.

~~Table of Contents~~

Results of Operations

The following table sets forth for the periods presented certain financial data as a percentage of net sales for the quarter and ~~six~~nine months ended ~~June 29,~~September 28, 2013 and ~~June 30,~~September 29, 2012:

	Quarters Ended				Six Months Ended				Quarters Ended				Nine months ended
	June 29, 2013		June 30, 2012		June 29, 2013		June 30, 2012		September 28, 2013		September 29, 2012		September 28, 2013		September 29, 2012
Net revenues	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Cost of revenues	83.0		80.8		82.4		80.5		81.6		79.7		82.1		80.2
Gross profit	17.0		19.2		17.6		19.5		18.4		20.3		17.9		19.8
Selling, general and administrative expenses	12.8		13.3		13.6		13.5		11.7		14.0		12.9		13.7
Operating income	4.2		5.9		4.0		6.0		6.7		6.3		5.0		6.1
Interest expense, net	0.3		0.4		0.4		0.5		0.5		0.4		0.4		0.4
Income before income taxes	3.9		5.5		3.6		5.5		6.2		5.9		4.6		5.7
Income tax provision	1.3		2.1		1.2		2.0		2.3		2.2		1.6		2.1
Net income	2.6	%	3.4	%	2.4	%	3.5	%	3.9	%	3.7	%	3.0	%	3.6	%

Our operations consist of two reportable segments: Frozen products and Snack products. The Frozen products segment produces frozen berries and frozen beverages, for sale primarily to club stores, groceries and mass merchandisers. The results of operations of WVFC have been consolidated into the Frozen products segment since the WVFC Acquisition. The Snack products segment produces potato chips, kettle chips, potato crisps, potato skins, pellet snacks, sheeted dough products and extruded products for sale primarily to snack food distributors and retailers or other snack food manufacturers under co-packing agreements.

Net Revenues. Consolidated net revenues increased ~~11.8%~~17.0% to ~~$53.7~~$54.5 million in the ~~second~~third quarter ended ~~June 29,~~September 28, 2013, an increase of ~~$5.7~~$7.9 million compared to ~~$48.0~~$46.6 million during the prior-year period. Net revenues for the ~~six~~nine months ended ~~June 29,~~September 28, 2013 increased ~~7.6%~~10.7% compared to the ~~six~~nine months ended ~~June 30,~~September 29, 2012. Our net revenues by operating segment were as follows (in thousands):

	Quarters Ended						Six Months Ended						Quarters Ended						Nine months ended
	June 29, 2013		June 30, 2012		% Change		June 29, 2013		June 30, 2012		% Change		September 28, 2013		September 29, 2012		% Change		September 28, 2013		September 29, 2012		% Change
Frozen	$	27,921	$	23,194	20.4	%	$	54,557	$	46,005	18.6	%	$	27,480	$	22,801	20.5	%	$	82,037	$	68,806	19.2	%
Snack	25,756		$	24,822	3.8	%	47,657		49,031		(2.8	)%	27,034		$	23,800	13.6	%	74,691		72,831		2.6	%
Consolidated	$	53,677	$	48,016	11.8	%	$	102,214	$	95,036	7.6	%	$	54,514	$	46,601	17.0	%	$	156,728	$	141,637	10.7	%

Our Frozen segment net revenues were ~~$27.9~~$27.5 million during the ~~second~~third quarter 2013, an increase of $4.7 million, or ~~20.4%~~20.5% compared to the prior year period. Net revenues from frozen berries increased ~~16.8%~~33.0% to ~~$23.0~~$24.7 million, compared to ~~$19.7~~$18.6 million during the prior year ~~largely~~primarily due to the acquisition of WVFC and increased demand in the branded and private label ~~and the acquisition of WVFC.~~fruit. Frozen beverage net revenues, which consisted of Jamba® smoothies and Seattle’s Best Coffee® branded frozen coffee drinks, were ~~$4.9~~$2.8 million, and ~~increased 40.9%~~decreased 33.8% compared to ~~$3.5~~$4.3 million in the prior-year period ~~primarily~~largely due to reduced rotations in the ~~continued rollout of Seattle’s Best Coffee® frozen coffee drinks~~club channel during the quarter.

During the ~~six~~nine months ended ~~June 29,~~September 28, 2013, the Frozen segment net revenues were ~~$54.6~~$82.0 million, up ~~18.6%~~19.2% compared to the first ~~six~~nine months of 2012. The increase in the Frozen segment net revenues was primarily driven by the acquisition of WVFC and increased ~~fruit sales due to~~ volume and new distribution ~~and the WVFC Acquisition.~~for frozen fruit. Frozen beverage net revenues totaled ~~$8.1~~$10.9 million for the first ~~six~~nine months of 2013, ~~an increase~~a decrease of ~~15.9%~~3.0% versus the prior ~~year primarily due to the continued rollout of Seattle’s Best Coffee® frozen coffee drinks during the first six months of the~~ year. Year-over-year comparability of Jamba net revenues ~~continues~~continued to be affected by timing of temporary rotations in the club channel. ~~Excluding the club channel, Jamba® net revenues increased 23.0%.~~

Our Snack products segment net revenues increased ~~3.8%~~13.6%, or ~~$0.9~~$3.2 million, to ~~$25.8~~$27.0 million for the ~~quarters~~quarter ended ~~June 29,~~September 28, 2013 compared to ~~$24.8~~$23.8 million for the ~~quarters~~quarter ended ~~June 30,~~September 29, 2012. This increase was primarily attributable to a ~~10.1%~~27.5% increase in sales of Boulder Canyon Natural Foods®, ~~a 36.8% increase in sales of private label products,~~ and ~~a 244.4%~~an 889.7% increase in co-packed products as a result of a new co-packing agreement. These gains were partially offset by a ~~17.8%~~18.6% decrease in T.G.I. Friday’s® net revenues and $0.7 million in revenues from third party distributed products, which did not recur in the current year due to the prior year sale of the DSD business.

Table of Contents

During the ~~six~~nine months ended ~~June 29,~~September 28, 2013 net revenues of the Snack segment ~~decreased $1.4~~increased $1.8 million or ~~2.8%~~2.6% to ~~$47.7~~$74.7 million compared to ~~$49.0~~$72.8 million in the first ~~six~~nine months of the previous year. This ~~decrease~~increase was primarily due to a 16.3% growth in sales of Boulder Canyon® sales, and an increase of 284.1% in sales of co-packed products. This increase was partially offset by a decline of ~~16.9%~~17.5% in T.G.I. Friday’s® net revenues and ~~$1.4~~$2.1 million in revenues from third party distributed products, which did not recur in the current year due to the prior year sale of the DSD Business. This decline was partially offset by a 11.4% growth in sales of Boulder Canyon® sales, a 28.0% increase in sales of private label products and an increase of 81.4% in sales of co-packed products.business.

Gross Profit. Gross profit for the quarter ended ~~June 29,~~September 28, 2013 ~~decreased 0.7%~~increased 6.2% compared to the quarter ended ~~June 30, 2012, with gross margin decreasing 220 basis points to 17.0% for the three months ended June~~September 29, ~~2013 compared to 19.2% for the three months ended June 30, 2012. For the six months ended June 29, 2013, gross profit decreased 3.2% compared to the six months ended June 30,~~ 2012, with gross margin decreasing 190 basis points to ~~17.6%~~18.4% for the ~~six~~three months ended ~~June 29,~~September 28, 2013 compared to ~~19.5%~~20.3% for the ~~six~~three months ended ~~June 30,~~September 29, 2012. For the nine months ended September 28, 2013, gross profit remained relatively consistent with the prior year at $28.0 million. Gross margin decreased 190 basis points to 17.9% for the nine months ended September 28, 2013 compared to 19.8% for the nine months ended September 29, 2012. Our gross profit and gross profit as a percentage of net ~~sales~~revenues by operating segment were as follows (in thousands):

	Quarters Ended								Six Months Ended								Quarters Ended								Nine months ended
	June 29, 2013		% of Net Revenues		June 30, 2012		% of Net Revenues		June 29, 2013		% of Net Revenues		June 30, 2012		% of Net Revenues		September 28, 2013		% of Net Revenues		September 29, 2012		% of Net Revenues		September 28, 2013		% of Net Revenues		September 29, 2012		% of Net Revenues
Frozen	$	4,446	15.9	%	$	3,810	16.4	%	$	9,394	17.2	%	$	8,060	17.5	%	$	6,221	22.6	%	$	5,323	23.3	%	$	15,615	19.0	%	$	13,383	19.5	%
Snack	4,690		18.2	%	5,394		21.7	%	8,567		18.0	%	10,489		21.4	%	3,835		14.2	%	4,148		17.4	%	12,402		16.6	%	14,637		20.1	%
Consolidated	$	9,136	17.0	%	$	9,204	19.2	%	$	17,961	17.6	%	$	18,549	19.5	%	$	10,056	18.4	%	$	9,471	20.3	%	$	28,017	17.9	%	$	28,020	19.8	%

Our Frozen segment gross profit for the quarter ended ~~June 30,~~September 28, 2013 increased ~~$0.6~~$0.9 million, or ~~16.7%~~16.9% to ~~$4.4~~$6.2 million, and decreased 5070 basis points to ~~15.9%~~22.6% as a percentage of net revenues for the quarter ended ~~June 29,~~September 28, 2013 compared to ~~16.4%~~23.3% during the quarter ended ~~June 30,~~September 29, 2012. This decrease in gross margin for the ~~second~~third quarter of 2013 was primarily attributable to ~~increased~~higher above the line spending ~~on trade promotion and slotting fees as well as increased freight and material costs.~~associated with the rollout of new frozen beverage products.

The Frozen segment gross profit increased ~~$1.3~~$2.2 million, or ~~16.6%~~16.7% to ~~$9.4~~$15.6 million, and decreased 3050 basis points as a percentage of net revenues to ~~17.2%~~19.0% for the ~~six~~nine month period ended ~~June 29,~~September 28, 2013 compared to ~~17.5%~~19.5% during the same period of 2012 primarily attributable to ~~overall plant efficiencies on~~ higher ~~volume.~~above the line spending associated with the rollout of new frozen beverage products.

Our Snack segment gross profit for the quarters ended ~~June 29,~~September 28, 2013 decreased ~~$0.7~~$0.3 million, or ~~13.1%~~7.5% to ~~$4.7~~$3.8 million, and decreased as a percentage of net revenues to ~~18.2%~~14.2% for the quarter ended ~~June 29,~~September 28, 2013 compared to ~~21.7%~~17.4% during quarters ended ~~June 30,~~September 29, 2012. This decrease in gross margin was primarily ~~due~~related to ~~increased above the line trade spending, increased freight~~a shift in product and ~~decreased~~channel mix, as well as a decrease in sales of ~~our T.G.I. Friday’s products.~~T.G.I.Friday’s products during the period.

Snack segment gross profit for the first ~~six~~nine months of 2013 decreased ~~$1.9~~$2.2 million to ~~$8.6~~$12.4 million compared to ~~$10.5~~$14.6 million in the prior year period. As a percentage of revenues, gross profit decreased ~~340~~350 basis points to ~~18.0%~~16.6% during the first ~~six~~nine months of 2013 compared to ~~21.4%~~20.1% in the prior year. This decrease in gross margin was primarily ~~due~~related to a shift in product and channel mix, a decrease in sales of T.G.I.Friday’s products during the period and increased ~~above the line trade spending and product mix.~~freight costs.

Selling, General and Administrative Expenses. Selling and administrative (“SG&A”) expenses ~~increased $0.5~~decreased $0.1 million, or ~~8.0%,~~2.1% to $6.4 million for the quarter ended ~~June 29,~~September 28, 2013 compared to $6.5 million during the quarter ended ~~June 30,~~September 29, 2012. As a percentage of net revenues, SG&A expenses decreased 50230 basis points to ~~12.8%~~11.7%, compared to ~~13.3%~~14.0% during the ~~first~~third quarter of 2012. The ~~increase~~decrease in SG&A ~~expenses~~expense as a percentage of revenue is primarily a result of an increase in mix of non-branded products requiring less promotional support as well as leverage from increased ~~sampling expenses related to Seattle’s Best Coffee and T.G.I. Friday’s® products and professional fees expenses associated with the WVFC Acquisition.~~net revenues.

For the ~~six~~nine months ended ~~June 29,~~September 28, 2013, SG&A expenses increased ~~$1.0~~$0.8 million, or ~~7.5%,~~4.3% to $20.2 million, compared to $19.4 million during the ~~six~~nine months ended ~~June 30,~~September 29, 2012, while as a percentage of net revenues, SG&A expenses decreased 1080 basis points to ~~13.5%~~12.9%, compared to ~~13.6%~~13.7% during the first ~~six~~nine months of 2012. The ~~increase~~decrease in SG&A ~~expenses~~expense as a percentage of revenues is primarily a result of an increase in mix of non-branded products requiring less promotional support as well as leverage from increased ~~sampling expenses related to Seattle’s Best Coffee and T.G.I. Friday’s® products.~~net revenues.

Interest Expense. Interest expense for the three and ~~six~~nine months ended ~~June 29,~~September 28, 2013 ~~declined 16.2%~~increased 39.7%, to ~~$0.2~~$0.3 million, and ~~10.0%~~4.6%, to ~~$0.4~~$0.6 million, respectively, compared to the three and ~~six~~nine months ended ~~June 30,~~September 29, 2012. Interest expense primarily relates to borrowings on our revolving line of credit and capital lease financing. For a description of our various financing facilities, see Note 6 to our Condensed Consolidated Financial Statements in Part I, Item 1 of this report.

Table of Contents

Income Tax Provision. Our income tax provision for the quarter ended ~~June 29,~~September 28, 2013 was ~~$0.7~~$1.3 million, compared to $1.0 million for the quarter ended ~~June 30,~~September 29, 2012. Our effective tax rate for the quarters ended ~~June 29,~~September 28, 2013 and ~~June 30,~~September 29, 2012 was ~~32.2%~~37.0% and ~~38.0%~~36.9%, respectively. The change in the effective tax rate is due to a decrease in the ~~tax-effected equity compensation costs.~~

~~Table~~benefits of ~~Contents~~domestic production activity deductions and research credits.

The income tax provision for the ~~six~~nine months ended ~~June 29,~~September 28, 2013 was ~~$1.3~~$2.5 million, compared ~~$1.9~~$2.9 million for the first ~~six~~nine months of 2012. Our effective tax rate for the ~~six~~nine months ended ~~June 29,~~September 28, 2013 and ~~June 30,~~September 29, 2012 was ~~33.9%~~35.4% and ~~36.1%~~36.4%, respectively. The change in the effective tax rate is due to ~~a decrease in the tax-effected equity compensation costs.~~an increase of benefits from domestic production activities.

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, acquisitions and debt repayment. Sufficient liquidity is expected to be available to enable us to meet these demands. Net working capital was ~~$23.1~~$33.5 million (a current ratio of ~~1.8:~~2.0:1) and $25.2 million (a current ratio of 2.1:1) at ~~June 29,~~September 28, 2013 and December 29, 2012, respectively.

Operating Cash Flows

Cash flows from operations for the ~~six~~nine months ended ~~June 29,~~September 28, 2013 and ~~June 30,~~September 29, 2012 reflect our net income, adjusted for non-cash items such as depreciation, amortization, share-based compensation expense and write-offs and write-downs of assets, as well as changes in accounts receivable, inventories, other current assets and liabilities, accounts payable and accrued expenses and other liabilities. Net cash provided by operating activities was ~~$6.8~~$0.3 million for the ~~six~~nine months ended ~~June 29,~~September 28, 2013 and ~~$10.8~~$9.4 million for the ~~six~~nine months ended ~~June 30,~~September 29, 2012. The ~~$4.0~~$9.1 million year-over-year decrease in cash provided by operations was primarily a result of increased cash used to maintain inventory in the current year primarily as a result of continued growth in demand primarily for our frozen fruit business and additional cash used to support increased accounts receivable as a result of increased sales growth. These decreases in cash provided by operations ~~was~~were partially offset by an increase in accounts payable related to ~~the purchase of WVFC, the accelerated timing of the harvest~~building inventory and ongoing capital projects in 2013.

Investing Cash Flows

Net cash used in investing activities was ~~$14.0~~$15.5 million for the ~~six~~nine months ended ~~June 29,~~September 28, 2013, compared to ~~$4.7~~$5.3 million for the ~~six~~nine months ended ~~June 30,~~September 29, 2012. This increase was primarily due to the payment of $8.5 million cash used to fund the WVFC Acquisition during the second quarter of 2013. Capital expenditures of ~~$5.5~~$7.1 million in 2013 ~~primarily~~ related to the purchase of manufacturing equipment of $5.7 million primarily at our Bluffton facility ~~of $3.5 million,~~for new packaging equipment, as well as $0.8 million in planting costs, ~~$0.7 in equipment purchased at our Lynden facility and $0.5~~$0.6 in office ~~equipment/software.~~equipment. Capital expenditures ~~of $4.7 million~~ in 2012 ~~primarily~~ relate to the purchase of manufacturing equipment of ~~$3.9~~$4.3 million, primarily at our Lyndenfacility,~~$0.5~~ $0.6 million in furniture and office ~~equipment/software~~equipment and ~~$0.3~~$0.4 million of building improvements. During the full year 2013, we plan to spend approximately $7.6 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 provided by financing activities for the ~~six~~nine months ended ~~June 29,~~September 28, 2013 was ~~$7.2~~$15.6 million compared to net cash used of ~~$6.2~~$4.2 million in the ~~six~~nine months ended ~~June 30,~~September 29, 2012. This ~~$13.4~~$19.8 million year-over-year increase in cash provided by financing activities is primarily due to new equipment term loans to finance the acquisition of WVFC and lower net repayment of our line of credit in the current year.

Debt and Capital Resources

At ~~June 29,~~September 28, 2013, there was ~~$0.4~~$0.8 million in cash and ~~$9.7~~$17.4 million borrowed on our revolving line of credit. At that date, ~~$15.7~~$12.6 million of additional borrowing were available under the revolving line of credit with U.S. Bank. 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

Table of Contents

repayment of the amounts outstanding under the New Loan Agreement (as defined noted in Note 6 to our Condensed Consolidated Financial Statements in Part I, Item 1 of this report) as defined in the agreement. The agreement requires us to maintain compliance with certain financial covenants, including a minimum fixed charge coverage ratio, a leverage ratio and an asset coverage ratio. At ~~June 29,~~September 28, 2013, we were in compliance with all of the financial covenants. See Note 6 to our Condensed Consolidated Financial Statements in Part I, Item 1 of this report for detail regarding our financing arrangements. We are currently negotiating a new senior syndicated credit facility with U.S. Bank that the parties anticipate will sign and close on or about November 8, 2013, the majority of which will be used to fund the Fresh Frozen Transaction.

~~Table of Contents~~

Outlook

We believe that our current financing arrangement with U.S. Bank will provide adequate ability to finance future capital expenditures. During the full year 2013, we plan to spend approximately $7.6 million in capital expenditures, 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. Management believes that we will generate positive cash flow from operations, along with our existing working capital and borrowing facilities, will enable us to meet our operating cash requirements for the next twelve months. The belief is based on current operating plans and certain assumptions, including those relating to our future revenue levels and expenditures, industry and general economic conditions and other conditions. For instance, if current general economic conditions continue or worsen, we believe that our sales forecasts may prove to be less reliable than they have in the past as consumers may change their buying habits with respect to snack food products. Unexpected price increases for commodities used in our snack products, or adverse weather conditions affecting our Rader Farms crop yield could also impact our financial condition. If any of these factors change, we may require future debt or equity financings to meet our business requirements. Any required financings may not be available or, if available, may not be on terms attractive to us.

Interest Rate Swaps

See Note 6 to our Condensed Consolidated Financial Statements in Part I, Item 1 of this report for detail regarding our interest rate swaps.

Contractual Obligations

Our future contractual obligations consist principally of long-term debt, operating leases, minimum commitments regarding third party warehouse operations services and remaining minimum royalty payments due licensors pursuant to brand licensing agreements.

Our future contractual obligations and commercial commitments at December 29, 2012, are summarized in the following chart (in thousands). We have no other off-balance sheet commitments.

	Payments due by period
	Less than 1 year		1-3 years		3-5 years		More than 5 years		Total
Long-term debt(a)	$	1,165	$	1,114	$	4,035	$	—	$	6,314
Capital lease obligations(b)	555		1,078		928		—		2,561
Operating lease obligations(c)	1,468		2,050		1,706		6,391		11,615
Purchase obligations(d)	19,270		—		—		—		19,270
Total	$	22,458	$	4,242	$	6,669	$	6,391	$	39,760

(a) Reflects amounts outstanding under our Loan Agreement as of December 29, 2012. During the ~~six~~nine months ended ~~June 29,~~September 28, 2013 we amended and restated our loan agreement with U.S. Bank, the terms of which are noted in Note 6 to our Condensed Consolidated Financial Statements in Part I, Item 1 of this report. As of ~~June 29,~~September 28, 2013, future contractual obligations under our New Loan Agreement totaled ~~$8.2~~$9.4 million ($~~0.6~~0.3 million due in remaining fiscal 2013; ~~$2.3~~$2.7 million due fiscal 2014-2015; ~~$2.4~~$2.9 million due fiscal 2016-2017; ~~$2.9~~$3.5 million due after fiscal 2017).

(b) See further discussion of our capital lease obligations as of December 29, 2012 in Note 6 to our Consolidated Financial Statements in Part II, Item 8 our Form 10-K for the year ended December 29, 2012.

Table of Contents

(c) Reflects amounts outstanding under our operating lease obligations as of December 29, 2012. During the ~~six~~nine months ended ~~June 29,~~September 28, 2013 we entered into a number of new lease commitments as part of the acquisition of Willamette Valley Fruit Company effective May 28, 2013. As of ~~June 29,~~September 28, 2013, future additional operating lease obligations under totaled $1.7 million ($0.1 million due in remaining fiscal 2013; $0.3 million due fiscal 2014-2015; $0.3 million due fiscal 2016-2017; $1.0 million due after fiscal 2017).

(d) 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.

~~Table of Contents~~

Critical Accounting Policies and Estimates

There have been no significant changes to our critical accounting policies and estimates since the filing of our Form 10-K for the year ended December 29, 2012.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

In the normal course of business, our operations are exposed to risks associated with fluctuations in commodity prices, interest rates and foreign currency exchange rates. We address these risks through controlled risk management that may include the use of derivative financial instruments to economically hedge or reduce these exposures. We do not enter into derivative financial instruments for trading purposes.

Commodity Pricing Risk

Interest Rate Risk

To the extent that we borrow under the New Loan Agreement, we are exposed to market risk related to changes in interest rates. Using debt levels and interest rates as of ~~June 29,~~September 28, 2013, the weighted average interest rate on borrowings was ~~2.7%~~2.4%. At ~~June 29,~~September 28, 2013, we had ~~$10.6~~$18.0 million in variable rate debt. A 10% increase in the variable interest rate would not have significantly impacted interest expense during the period.

To manage exposure to changing interest rates, we selectively enter into interest rate swap agreements. Our interest rate swaps qualify for and are designated as cash flow hedges. Changes in the fair value of a swap that is highly effective and that is designated and qualifies as a cash flow hedge to the extent that the hedge is effective, are recorded in other comprehensive income (loss). While these interest rate swap agreements fixed a portion of the interest rate at a predictable level, we estimate pre-tax interest expense would have been approximately ~~$0.1~~$0.2 million less without these swaps in the first ~~six~~nine months of 2013. See Note 6 to our Condensed Consolidated Financial Statements in Part I, Item 1 of this report for further discussion of our interest rate swap agreements.

Foreign Currency Exchange Rate Risk

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

Item 4. Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of management, including the 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, the 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 SEC’s rules and forms and (2) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

No change occurred in our internal controls over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

INVENTURE FOODS, INC. AND SUBSIDIARIES

Part II.Other Information

Item 1.Legal Proceedings

For a discussion of legal proceedings, see Note 7 to the Condensed Consolidated Financial Statements in Part I, Item 1 of this report.

Item 1A. Risk Factors

During the quarter and ~~six~~nine months ended ~~June 29,~~September 28, 2013, there were no material changes from the risk factors as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 29, 2012.

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

None.

Item 3.Defaults upon Senior Securities

None.

Item 4.Mine Safety Disclosures

Not applicable.

Item 5.Other Information

None.

Item 6.Exhibits

(a) Exhibits (unless otherwise noted, exhibits are filed herewith).

~~10.1 —~~		~~Asset Purchase Agreement, dated as of May~~ 31.1 — Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a). 31.2 — Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a). 32.1 — Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101 — The following materials from the Inventure Foods, Inc. Quarterly Report on Form 10-Q for the quarter ended September 28, ~~2013, by and between WVFC Acquisition Sub, Inc., Willamette Valley Fruit Company, LLC, and its members.~~

~~10.2 —~~		~~2013 Bonus Plan (incorporated by reference to the Company’s Current Report on Form 8-K filed on May 21, 2013).~~

~~31.1 —~~		~~Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a).~~

~~31.2 —~~		~~Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a).~~

~~32.1 —~~		~~Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~

~~101 —~~		~~The following materials from the Inventure Foods, Inc. Quarterly Report on Form 10-Q for the quarter ended June 29,~~ 2013 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Cash Flows and (iv) related notes.

Table of Contents

INVENTURE FOODS, INC. AND SUBSIDIARIES

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated:	~~August 6,~~November 5, 2013	INVENTURE FOODS, INC.


		By:	/s/ Terry McDaniel
			Terry McDaniel
			Chief Executive Officer
		~~(Principal~~	(Principal Executive Officer)

	Frozen Products		Snack Products		Consolidated
Quarter ended June 29, 2013
Net revenues from external customers	$	27,921	$	25,756	$	53,677
Depreciation and amortization included in segment gross profit	287		524		811
Segment gross profit	4,446		4,690		9,136
Goodwill	8,777		5,986		14,763

Quarter ended June 30, 2012
Net revenues from external customers	$	23,194	$	24,822	$	48,016
Depreciation and amortization included in segment gross profit	217		501		718
Segment gross profit	3,810		5,394		9,204
Goodwill	5,630		5,986		11,616

Six months ended June 29, 2013
Net revenues from external customers	$	54,557	$	47,657	$	102,214
Depreciation and amortization included in segment gross profit	536		1,019		1,555
Segment gross profit	9,394		8,567		17,961
Goodwill	8,777		5,986		14,763

Six months ended June 30, 2012
Net revenues from external customers	$	46,005	$	49,031	$	95,036
Depreciation and amortization included in segment gross profit	433		991		1,424
Segment gross profit	8,060		10,489		18,549
Goodwill	5,630		5,986		11,616