Organization and Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 29, 2012

Organization and Summary of Significant Accounting Policies

Basis of Presentation

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 31, 2011.  The results of operations for the quarter and nine months ended September 29, 2012 are not necessarily indicative of the results expected for the full year.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”)  in an orderly transaction between market participants at the measurement date.  We classify our investments based upon an established fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurements).  The three levels of the fair value hierarchy are described as follows:

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

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

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

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

At September 29, 2012 and December 31, 2011, 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.

		September 29, 2012					December 31, 2011
Balance Sheet Classification		Interest Rate  Swaps			Non-qualified Deferred Compensation Plan Investments		Interest Rate Swaps			Non-qualified Deferred Compensation Plan Investments
Interest rate swaps	Level 1	$	—		$	—	$	—		$	—
	Level 2	(820,621		)	—		(843,635		)	—
	Level 3	—			—		—			—
		$	(820,621	)	$	—	$	(843,635	)	$	—
Other assets	Level 1	$	—		$	411,615	$	—		$	384,778
	Level 2	—			—		—			—
	Level 3	—			—		—			—
		$	—		$	411,615	$	—		$	384,778

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.

Income taxes

Income taxes

Our income tax provision for the quarter ended September 29, 2012 was $1.0 million, compared to an income tax benefit of $0.2 million for the quarter ended September 24, 2011.  Our effective tax rate for the three months ended September 29, 2012 and September 24, 2011 was 36.9% and a benefit of 56.2%, respectively.  The change in the effective rate is due to slightly smaller benefits of the domestic production activity deductions, research credits and other items, along with lesser tax-effected equity compensation costs.

The income tax provision for the nine months ended September 29, 2012 was $2.9 million, compared $1.0 million for the first nine months of 2011.  Our effective tax rate for the nine months ended September 29, 2012 and September 24, 2011 was 36.4% and 33.5%, respectively.  The change in the effective rate is due an increase in non-deductible expenses, prior year true-ups and lesser benefits associated with research tax credits.

Earnings Per Common Share

Earnings Per Common Share

Basic earnings per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period.  Diluted earnings per share is calculated by including all dilutive common shares such as stock options and restricted stock.  Options to purchase 204,700 and 259,866 shares of our Common Stock were excluded from the computation of diluted earnings per share for the quarter and nine months ended September 29, 2012, respectively.  For the quarter ended September 24, 2011, due to the net loss, basic weighted average shares outstanding were required to be utilized for diluted earnings per share.  Options to purchase 214,500 shares of our Common Stock were excluded from the computation of diluted earnings per share for the nine months ended September 24, 2011.  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 quarter and nine months ended September 29, 2012 and September 24, 2011:

	Quarter Ended					Nine Months Ended
	September 29,  2012		September 24,  2011			September 29,  2012		September 24,  2011
Basic Earnings Per Share:
Net income (loss)	$	1,739,648	$	(190,812	)	$	5,084,566	$	2,075,254
Weighted average number of common shares	19,030,959		18,139,674			18,737,131		18,072,579
Earnings (loss) per common share	$	0.09	$	(0.01	)	$	0.27	$	0.11
Diluted Earnings Per Share:
Net income (loss)	$	1,739,648	$	(190,812	)	$	5,084,566	$	2,075,254
Weighted average number of common shares	19,030,959		18,139,674			18,737,131		18,072,579
Incremental shares from assumed conversions of stock options and non-vested shares of restricted stock	659,026		—			799,601		659,956
Adjusted weighted average number of common shares	19,689,985		18,139,674			19,536,732		18,732,535
Earnings (loss) per common share	$	0.09	$	(0.01	)	$	0.26	$	0.11

Stock Options and Stock-Based Compensation

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 8 “Shareholder’s Equity” for additional information.

Adoption of New Accounting Pronouncements

Adoption of New Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (“FASB”) issued amendments to disclosure requirements for presentation of comprehensive income.  This guidance, effective retrospectively for the interim and annual periods beginning on or after December 15, 2011, with early adoption permitted, requires presentation of total comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  In December 2011, the FASB issued an amendment to defer the presentation on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for annual and interim financial statements.  The implementation of the amended accounting guidance did not have a material impact on our condensed consolidated financial statements.

In September 2011, the FASB issued amendments to the goodwill impairment guidance which provides an option for companies to use a qualitative approach to test goodwill for impairment if certain conditions are met.  The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted.  The implementation of the amended accounting guidance did not have a material impact on our condensed consolidated financial statements.